Stocks May Lose Up to 10% From Here if This Bull Market Continues

Prominent stock-market strategist Hayes Martin brings a nuanced perspective for those invested in the stock market's trajectory.

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Beginning with less favorable news, Martin projects that the ongoing decline that initiated in late July and early August could potentially lead to a reduction of the market averages ranging between 8% and 13%. The S&P 500 index has already demonstrated a downward trend in August. On a brighter note, Martin emphasizes that this forthcoming decline is not indicative of the demise of the current bull market, nor does it herald the onset of a new bear market.

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Martin, who holds the position of President at the esteemed advisory firm Market Extremes, remains a valued source of insight in my purview. When correspondence from him enters my inbox, it commands my attention. For the sake of transparency, it's worth noting that his advisory service does not have any contractual affiliation with my auditing firm for performance calculations.

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A recent communication from Martin, received on August 1, signaled a shift in sentiment. Unlike his prior communications, which indicated a stable foundation for the market's advance, this one reported a concerning "deterioration" of the market's "internals." He concluded that while he does not anticipate a major decline as a result, a more substantial intermediate pullback should be anticipated. In such conditions, he suggests adopting a defensive stance.

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From August 1 to August 15, the S&P 500 index observed a 3% decline, while the Nasdaq Composite index registered a 4.6% decrease.

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In a subsequent communication, Martin expanded on his assessment, projecting that this correction still has room to develop within the 8% to 13% range. However, his analysis indicates that the market's underlying conditions have only experienced a modest deterioration, diverging from the pronounced deterioration observed at the culmination of bull markets. Consequently, Martin anticipates that the current advance will recommence once this correction completes its course.

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In assessing Martin's analysis, it is prudent to consider his prior insights over the past eighteen months. For instance, in the midst of the bear market that initiated in January of the preceding year, he accurately predicted a countertrend rally in which the technology sector would surge between 15% and 25%. Subsequently, over the following three months, the Nasdaq Composite experienced a 16.5% rise.

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Following the culmination of that rally, the bear market resumed and by early October 2022, the Nasdaq had effectively nullified the aforementioned 16.5% gain. At this juncture, Martin foresaw a substantial "reflex bounce," even though he did not predict the emergence of a new bull market. He forecasted that market averages could rise by 10% to 15%, with technology-centric indexes potentially experiencing gains in the range of 15% to 20%. Remarkably, his predictions aligned closely with the market's actual trajectory.

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In conclusion, for those who value Martin's insightful perspective, a shift towards a more defensive posture within stock portfolios might be worth considering.

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