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We've just come across a stock market crash chart that signals a serious warning to investors around the world.
"Warnings are starting to flash all over," Money Morning Capital Wave Strategist Shah Gilani says. "The predominant sentiment these days is uncertainty. The markets are nervous. Very nervous."
That's why we've developed an investing guide for a possible stock market crash in 2016. But before we get to that, here's the chart and the major warning signal…
"But, after coming down and touching the up-trending channel's lower support channel line (3) in August 2015 – and then not being able to move much higher – the index just broke below its major up-trending support channel marker," Gilani explains.
"That's a dire warning," he adds. "And worse, a new down-trending channel may become the major channel."
Global stock markets have been extremely volatile in 2016. Worries of a slowdown in China, plunging oil prices, and negative interest rates pushed markets into a bear market earlier this month.
The MSCI All- Country World Index, a broad benchmark of global stocks, slipped into a bear market on Feb. 11 when it closed 20% below its April 2015 high. That also had investors worrying about a potential stock market crash.
U.S. corporate earnings have also been soft. With 87% of the S&P 500 reporting, Q4 earnings reflect an average decline of 3.6%, according to FactSet. If that pace holds, profits for the benchmark will have fallen for three straight quarters for the first time since 2009.
And the current quarter looks even worse. FactSet projects earnings will decline 6.9% in Q1 2016. That's down sharply from growth of 4.8% forecast in September and 15.1% in April 2015.
"Fortunately you don't need a crystal ball to know where stocks are headed," Gilani said. "That's because sometimes markets give clear signals about what they're doing – and where they're going."
Gilani adds that recent rallies from oversold levels are not signs of a rebound.
"These kinds of rallies, big pops higher in what I see as a bear market, are dangerous," Gilani shares. "They can be the ultimate bear trap and ruin investors. And that means these are trading markets, not solid investing markets."
Playing bounces is okay, Gilani says, as long as you use tight stops. And don't kick yourself if you missed out on the last rally, or even if you miss the next.
"There will be plenty of time to get in and ride the next Great Bull Market when it arrives," Gilani says.
But for now, investors need to maintain a strong bear market investing strategy. That's why Money Morning experts have developed a complete stock market crash investing guide. It will help you protect your hard-earned money, and even profit, when the markets are chaotic...
The Stock Market Crash 2016 Survival Guide
The first way to protect your money is by trading. (Don't worry – if you aren't a trader, we also have tactics for you, too. Keep reading.)
"The bull market's end gives traders the juiciest opportunities ever," said Money Morning Options Trading Specialist Tom Gentile. Gentile just led his subscribers to a 100% return in the first week of the year – as the Dow fell more than 900 points.
"If you're trading, this is a great time to be in the market. There are bargains all over, and even better, the short, sharp market action means options plays can bring in huge returns in short order," Gentile told readers last week.
Gentile points out these types of moves every single week. Investors can get looped in here and find out the method behind his 100% gain.
Another way to profit during a stock market crash is with an inverse exchange-traded fund (ETF). These are designed to gain while markets fall.
Gilani likes three of these ETFs. Each one is designed to track the inverse performance of a specific index, either the Dow, S&P 500, or Nasdaq. These ETFs will rise as a bear market drags down the broader indexes.
Gilani also has a specific short-term move for when he believes markets will fall hard that day or the next. You can get access to all four of his picks here.
Finally, for long-term investors looking to hold stocks for five or 10 years, Money Morning Chief Investment Strategist Keith Fitz-Gerald says to focus on companies that provide products the world cannot live without.
"In tech, that includes names like Facebook Inc. (Nasdaq: FB), Apple Inc. (Nasdaq: AAPL), and Alphabet Inc. (Nasdaq: GOOGL)," he said. "And select companies like The Coca-Cola Co. (NYSE: KO) that have a long history of increasing dividends through thick and thin. Also, put new money to work in companies like Raytheon Co. (NYSE: RTN)."
Stocks like these are investments. They may be down now, but you're going to be holding them through several market cycles.
"They may fall a bit with the broader markets, but the markets have a terrific upward bias over the long term. The Dow, for example, returned more than 22,000% over the last century despite two world wars, all sorts of regional conflicts, depression, recession, and more."
Fitz-Gerald reminds investors that are mulling a move to the sidelines to be selective, but be in the game.
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