U.S. Stock Market Is A Bubble: 2020 Is Coming

The S&P 500 looks to have entered a bubble. It is an early stage bubble that appears to have just begun.

If nothing changes to stop it, we could see 5,000 in two to three years. It’s hard to judge the terminal of a bubble or the speed of it because the higher it goes the fast it goes until the trend is parabolic.

A bubble is simply the termination of a compounding cycle, that accelerates because its success sucks in an unsustainable amount of money chasing easy profits.

With discipline there is a lot of money to be made in a bubble market but the player needs to embrace the fact it is unsustainable.

If you can operate under that stress you can do life-changingly well and likewise if you believe the bubble will go on forever and you hold on even after the bubble starts to deflate, you can easily suffer life-changing losses.

Market cycles go: recovery, boom, bubble, bust... recovery, boom, bubble, bust.

It’s an inevitable cycle, it’s practically the circle of life. Governments and regulators try to flatten out this wave into a straight-line ascension, but it’s doubtful that this is possible because if you think hard about it, a straight line is the rarest of progressions and everything else is going to have to go exponential at some stage.

You don’t have to be a market guru to see the bubble phase is under way. You just have to look for it:

The key to looking at this is the clean break out of the turbulence of recent years. For all the bad news in the media, the market is on its way up almost vertically.

The Nasdaq looks even more bullish which is no surprise. The Nasdaq is loaded with tech companies, with the first cohort of trillion dollar companies already blazing the 12-digit trail. Just to get a grip of this, $1tr is approximately $10,000 per nuclear US family, which intuitively feels like a lot of money. However, I’ve long given up doing these comparisons. Money is just a magnetic tick on a spinning hard disk, and value and intrinsic value continue to diverge as time passes.

Nonetheless, ‘trees don’t grow to the sky’ and when you see a chart like the Nasdaq’s it’s hard not to see the foothills of a bubble.

Investors and traders can see this emergent trend and ride it for all it’s worth and de-risk when it settles into another level because the market certainly looks on a tear.

The key is planning your exit.

I like to get out as it runs away in the final vertical, others like to get out as it starts to crash. The key is to know in advance what you plan to do and what you are looking for in the market action or newsflow to trigger your retreat.

You can’t get the top but you can certainly hold on for the bottom, so deciding this is the bubble part of the cycle is to prepare not only for the journey but also for the destination.

2020 is going to be a big year.

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Clem Chambers is the CEO of private investors website ADVFN.com and author of 101 Ways to Pick Stock Market Winners and Trading Cryptocurrencies: A Beginner’s Guide.

In November 2018, Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards. T