History Says a February Stock Market Crash Is Inevitable

As the market races higher, investors should be cautious of a February stock market crash that looks all but certain.

If history is any indication, February could be a highly volatile time for stocks. Tread carefully, analysts warn. | Image: Spencer Platt / Getty Images / AFP

• Sentiment indicators suggest a stock market crash is on the horizon.
• Today’s market has become incredibly similar to that of 2018 just before a major market correction in February.
• Without a significant pullback, the market is headed into bubble territory.

The first week of earnings season was an impressive one, leading both the Dow Jones Industrial Average and the S&P 500 markedly higher. With week two underway, optimism has already started to move the needle higher as Wall Street continue to bet on strong results. But warning signs that a stock market crash is coming have been flashing in the background. Now isn’t the time to be swept up in the wave of bullishness, because it’s about to crash.

Assessing The Stock Market Bubble

A stock market crash may not be in the cards tomorrow, but it could still be on the horizon, some analysts believe. At some point, the market’s beaming optimism will grow cold. No one can be certain of when a stock market correction will take place. Still, there are some indicators that can help put the impressive January rally into perspective.

The S&P 500 surged to record highs this week as investors continue to pour capital into the market. That has pushed more than 80% of the index’s stocks to above their 200-day moving average. On its own, that should give investors pause as it signals overwhelming optimism.

The larger worry, though, is what history tells us. The last time such a large percentage of S&P 500 stocks were trading at these levels was January 2018. After rising to new highs at the end of January, the S&P 500 suffered a pullback of more than 10% in just a matter of days.

It’s also worth noting that a correction is necessary to keep the market from ballooning into a much larger problem. There have been countless warnings about the potential for a stock market bubble, but analysts from JP Morgan Chase & Co say not to worry. They calculate that the S&P 500 would need to make its way above 3,700 to put the stock market at risk.

At the time, they noted that although market performance from 2017-2019 resembles that of a bubble, 2020 would need to produce a year-long surge to produce a true market bubble.

January has produced the beginning of that surge. The S&P 500 gained 100 points over the past month. If that growth rate continues the market will be indisputably in bubble territory well before the end of the year.

February Stock Market Crash

Predicting the exact timing of a stock market crash is ultimately impossible, but that doesn’t mean you can’t get a general idea of where stocks are heading. Mark Newton, an independent market technician, is urging his clients to proceed with caution. He says the striking similarities between today’s market and that of January 2018 suggest things will go south sooner than later……more here

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