Why Stocks Won't Crash (For Now) [SPDR S&P 500 ETF Trust, PowerShares QQQ Trust, Series 1 (ETF), ProShares Short S&P500 (ETF), SPDR Dow Jones Industrial Average ETF, ProShares UltraShort S&P500 (ETF), ProShares Ultra S&P500 (ETF)] - Seeking Alpha

Why Stocks Won't Crash (For Now) [SPDR S&P 500 ETF Trust, PowerShares QQQ Trust, Series 1 (ETF), ProShares Short S&P500 (ETF), SPDR Dow Jones Industrial Average ETF, ProShares UltraShort S&P500 (ETF), ProShares Ultra S&P500 (ETF)] - Seeking Alpha



The bull and bear case for stocks can be argued endlessly right now because the economy is doing okay while stocks are undeniably overvalued.  The bears have ammunition when stocks are overbought, but they don't have enough ammunition to bring down the fort until the economy starts to go down.  Federal Reserve manufacturing reports and housing will need to be monitored to see when the economy is truly going down.



The link to the article above will show that we are a long way from a bear market for other reasons.  The author contends that it will take one-and-a-half to three years after the Federal Reserve starts to raise rates before a stock market top occurs.  So, if the Fed begins to raise rates next year, we still have a minimum of two and a half years before the market starts to go down.  This is based on 100 years of stock market data.



Another argument that the author mentioned is that inflation will need to be 4% or higher to send stocks down.  One of my favorite websites for monitoring inflation and other economic factors is the St. Louis Federal Reserve.  You can look at their FRED page to get a snapshot of how the economy is doing.  We are nowhere near 4% inflation right now.  So, this article supports the bull case for stocks right now.



In this type of environment, though, the bears have enough power to restrict stock market gains.  The market will only slowly creep higher since stocks are already overvalued, and there will probably be several big pullbacks this year.  The best stock to buy when the market is down is UDOW, the leveraged Dow ETF.  The market will always recover because we are still okay economically.  You will just have to be patient until the Dow gets back near the top again and then take profits on UDOW while you have them.  If you can make 8% on UDOW five times per year, you will make 40% for your money.  This will most likely beat most stocks as well as the S&P 500.