by Edward Lambert
Mark Cook is an investor who uses his own proprietary indicator to assess the stock market. He saw the crashes of 1987, 2000 and 2007 (article from WSJ Market Watch). He is seeing the stock market going into strange territory at the moment.
“It’s like being in the Twilight Zone, he says. “Imagine going outside when it’s raining and getting sunburned. That’s the environment we’re in right now.”
He sees a stock market downturn ready to happen and I agree. My assessment though is based on a different indicator, the effective demand limit.
As the economy expands in a business cycle, there will be periodic corrections of stock prices, but stock prices will continual their upward march afterwards. However, when the end of the business cycle is reached, there comes a point where stock prices do not recover after a correction because of recession.
So when people talk about a correction, keep in mind that a correction may mean a recession.
The real question is… How internally unstable is the market? How explosive is the instability? Mark Cook says…
“Could the market go higher? Yes, it could, but the extension of time will create an even greater divergence that has to be snapped back together.”