It's obvious when you think about it, but lots of investors struggle to come to grips with this fact: The stock market is like a living creature whose personality mimics the psychology of the investors who give it life.
If investors are calm and optimistic, the market naturally reflects that positivity.
But when investors are unsure about the immediate future - like they are right now - and have to juggle competing and complementary apprehensions about... politics... interest rates... economic growth... and whether the mega-cap tech stocks they believed were the Holy Grail are about to be subject to all kinds of new regulations... their nervousness manifests itself as volatility, mirroring their fears.
That's where the market is now - where it's been since February, in fact.
Goodbye, Steady Eddie - hello, Nervous Nellie.
When that happens, the market does what it always does: It takes the path of least resistance.
Where's that path heading now?
I'll show you. Buckle up...
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The Party Is Most Definitely Over
It was an easy ride on the way up. And a very long one, too. Everything that mattered was contained in a giant, magical vault.
The U.S. Federal Reserve, leading the charge of global central banks, slathered free money on big banks after the financial crisis, throughout the Great Recession, all the way up to last year.
The Fed (as other central banks continued their handouts) drove interest rates so low that the only yield game in town was out on the "stock market risk" limb of the "investment" tree.
Should the Fed have done that? Or kept it up for as long as it did? None of that matters now.
It happened, and it worked to drive money into the market. Mission accomplished.
And now, investors who've grown accustomed to long periods of low volatility and steady gains are looking at the prospect of the punchbowl being taken away. The end of the party.
And so here are the big unknowns:
How will markets react to having to stand on their own two feet?
And what unseen support mechanisms might yet come crumbling down as interest rates are "normalized?"
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Then there's the political questions. As divisive as the 2016 presidential election was, partisanship is worse now. It's crazy. Divided government and checks and balances are one thing, but not knowing what's fake and what's truth is something else altogether.
The stock market zoomed higher after the election on prospects of tax cuts, deregulation, and infrastructure spending.
We got the tax cuts, we're getting more deregulation, and, eventually, maybe some infrastructure spending.
All that means is the good news has already happened. It's in the rearview mirror.
What's left to see now is whether earnings can continue to grow, whether tax cuts will spur more supply-side growth, whether consumers will get more in their paychecks and spend more of them, and how much capital spending we will see in the next couple of quarters.
It's understandable why the market's nervous. Investors are nervous.
What's next?
The Technical Message from the Market: "I'm Scared"
Now is the perfect time to stop listening to the analysts and talking heads who don't matter and start listening to what the market's been saying and doing. Because the market does what it does, the way water seeks its own level on the path of least resistance.
And right now, that path is down.
NO ROOM FOR MISTAKES: There may be only a few months or weeks to prepare - a market signal that showed up each time before the Great Depression, the dot-com crash, and the 2008 crisis just appeared again. Click here to for details...
The Nasdaq, with all its tech leadership stocks, has broken down. It's saying, "Help! I've fallen, and I can't get up."
Since September 2016 (I could go further back, but the channels are so perfect since September 2016), the Nasdaq has been in a perfectly defined upward bullish channel, making an all-time high in January 2018. It then decisively broke through the lower up-trending support channel in early February. That was meaningful.
Then, the Nasdaq made another higher high in March, right to the top of the upper up-trending channel line. That was great - that is, until it almost immediately broke back down, decisively breaking through the lower up-trending channel line.
Now, that lower up-trending channel line is resistance.
By breaking down through the lower up-trending channel line twice, the Nasdaq formed a double bottom. That's a warning level, for sure.
It's sitting at 7,090 now. If the Nasdaq breaks that new double bottom around 6,777, it could be curtains.
The Dow Jones Industrials were trading in a similar up-channel since September 2016. They made all-time highs in January, too, and then broke right through their lower up-trending channel support decisively.
In fact, the Dow's action, since breaking down in February, is downright ugly.
Every time the Dow tried to rally off its February lows, it's made lower and lower highs. In other words, it could never get higher than the last rally before breaking down again.
It gets worse: The Dow is facing a double bottom, too.
If you're looking at the technicals of the market, they're talking to you.
They're telling you there's no positive energy in the market. There's no optimism, other than the hope that we don't break below the double bottoms the Nasdaq, the Dow, and the S&P 500 have all made.
The market is telling us and showing us that the path of least resistance is down... for now.
I can tell you this much...
The markets have been more volatile than anyone participating in the rally run-up expected. There's no reason to expect this to change anytime soon.
The best course of action for you is to take volatility by the horns. Take steps to protect your money, tighten up your stops where you have them placed, and make a note of any "mental" stops you might have, while looking for ever-present opportunities to profit on moves to the downside.
The upshot: Prepare yourself. Based on the charts, based on experience, I don't think what's coming is going to be very pretty - at all - but it is possible for you to learn how to get ready. Click here.
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In fact, one of his last trade recommendations closed out for a 995% win. And he's got seven more trade recommendations lined up right now.
So if you're not making gains like this... you could be cheating yourself out of tens of thousands of dollars.
To learn how to get in on this yourself, click here...
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.