In Part I of this research article, my research team and I highlighted the five unique components of an Excess Phase peak and breakdown process. We are sharing this data with you because we believe the US stock market has already meandered 2.5 years past the end of a US Stock Market Appreciation phase and is well into an Excess Phase Peaking process. This becomes very important for traders because risks are much higher in these late Excess Phase stages because volatility is usually 4x to 6x higher than previous phases. Additionally, psychologically, many traders want the rally to continue and deeply believe the end of this phase is “just a pullback in a bigger trend”. This can be very dangerous as traders sometimes continue to buy into deeper price corrections – leveraging their accounts to the hilt thinking “they are going to make a killing when the rally resumes”.
Exploring Past Excess Phase Peak/Breakdown Events
Excess Phases and Blow-Off Peaks/Bottoms can become very addictive for certain people – especially those that have gotten into the trend before the Excess Phase began. These people are often “die-hard” believers that the trend will never stop rallying and can sometimes leverage themselves into very dangerous positions.
If you recall from the first part of this research article, there are five phases to the Excess Phase price decline and we believe each of these five phases is fairly common for all excess phase breakdowns: Continue reading "How To Spot The End Of An Excess Phase - Part 2"