Investors are shell-shocked, and with reason; the stock market plunged in its worst December since the Great Depression! This fueled uncertainty, concern and outright panic, observes Mary Anne & Pamela Aden, resource experts and co-editors of The Aden Forecast.
Most stocks were caught up in this massive decline, which is not unusual once a bear market is underway. Even though some will argue that a bear market has yet to get started because several of the major stock indexes haven't dropped 20%, we disagree.
First of all, this 20% rule was a random decision made up in recent years. It became popular and now it's supposed to define when a bear market is, or is not, in force.
The Dow Theory, however, has been around for about 100 years and it's been very reliable in identifying bull and bear markets. It triggered a bear market confirmation on December 10 and stocks have dropped sharply since then. And despite recent volatility, the bear remains in the driver's seat.
But why? We know the global economy, the trade war, and rising interest rates have been spooking the stock market. But toward the end of December, problems out of Washington also helped fuel the bear. This was not the case before and it marks a turning point.
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The main reason why is because these problems are likely going to continue into the new year. And if they do, it's going to keep stock investors on edge and nervous, which simply isn't a good environment for stocks.
In our view, investors should go for the gold. At times like this, investors turn to gold and it's been on the rise. If the bear market in stocks continues, and it looks like it will, gold will keep rising as well. And it may prove to be the best investment in 2019.
An easy way to take advantage of this gold upmove is to buy a gold exchange-traded fund — SPDR Gold Trust (GLD). It's also interesting to note that when gold rises, gold shares historically tend to outperform gold. So buying a small position in the VanEck Vectors Gold Miners ETF (GDX) is a higher risk buy.
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