Analysis

Is This a Big Sign of a Big Stock Market Turn?

A stock market warning has just developed for those who are bullish.

Here's what I'm talking about (CNBC, May 22):

The House voted May 22 to pass the biggest rollback of financial regulations since the global financial crisis.

In a nutshell, lawmakers want to get rid of onerous rules that have been placed on small and medium banks as part of Dodd-Frank, the law that was passed in 2010 to prevent another financial meltdown.

One might ask, "Why should bullish investors see this as a red flag? Isn't the loosening of financial regulations a positive for the stock market?"

Well, EWI has, indeed, observed a correlation between financial legislation and the stock market, but it's probably not what most investors expect.

Financial history shows that financial legislation tends to follow the stock market, not the other way around. Put another way, financial regulators implement reforms after busts and later turn optimistic and repeal or relax financial regulations after booms.

Besides Dodd-Frank, a historic example is Glass-Steagall, the first major federal legislation to separate commercial and investment banking. This law was enacted after the bottom of the 1929-1932 stock market crash.

The December 2013 issue of the monthly publication, The Socionomist, showed this chart and said:

Notably, the stock market rallied after Glass-Steagall passed, and then some 66-years later, plummeted shortly after the law was repealed.

Yes, the government is usually the last group to act on a trend. If technical indicators are also pointing to a reversal, investors would do well to position their portfolios accordingly.

So happens, EWI's analysts are saying that many of the market's technical indicators are suggesting a major acceleration in the DJIA's current Elliott wave price pattern.

 


 

Get more financial insights like these -- 100% free. Just follow this link

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.


RELATED CONTENT

Loading ...



Copyright © 2024 FOREXSTREET S.L., All rights reserved.