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The financial news networks stay busy putting out brand new stories every hour of the day…
And many of the stories are predictions of what could come and how the markets next move could affect your portfolio…
But your knee jerk reaction to the newest headlines could lead you into a world of trouble.
Especially when stories like the latest CNBC Fed Survey are hitting the airwaves – boasting a 26% chance of a U.S. recession in 2019.
There’s a way to prepare for this “doomsday” prediction though.
Here’s what you need to know…
The Truth about the Recession in 2019
Last week, CNBC announced the results of its Fed Survey stating amongst other things that the U.S. has a 26% chance of falling into a recession in the next 12 months. This is the highest probability since January 2016 when CNBC predicted a 29% probability of recession.
Now, before you go running down the streets screaming “The sky is falling!” let’s slow down and think about this a bit.
According to the National Bureau of Economic Research (NBER), the last US recession (declared retroactively on December 1, 2008) began in December 2007.
But that didn’t stop the prediction in 2016 from leading to a market sell-off. And this current prediction is no different which indicates how sensitive market survey respondents are to market sell-offs.
As you look further into these bold recession predictions though, you’ll realize that that these claims happen more often than not. For instance, in 2011, the CNBC Fed Survey declared a whopping 36% chance of a recession.
Let’s get this straight:
CNBC predicted a 36% chance of recession in 2011, a 29% chance in 2016, neither of which happened. Now we have a 26% chance of recession…
So, what could that mean for you?
Some market pundits have come out to back up the current prediction pointing out the global economy is in decline and that the U.S. must at some time follow suit. Further strengthening the “proof” is a lack of a US/China trade deal, the government shutdown, and possible Fed rate hikes.
All of this would suggest that the 26% probability of a recession is on the low end.
Perhaps a bit of torturing the data until it confesses?
The survey goes on to predict only a 4% rise in the S&P 500.
Here’s the thing the thing though – opinions are like, well, belly buttons. Everybody’s got one – so here’s mine…
I don’t listen to news from those who don’t have skin in the game. I trust my rules-based trading systems.
Furthermore, anyone who doesn’t trade options during these volatile times is crazy.
This prediction may come to pass. Sometimes recession news can end up being a self-fulfilling prophecy. If it does and the market stays flat to up a bit as predicted, I’ll be ready. If the markets end up tanking, I’ll be ready for that too. And that is the power of options trading.
In short, I’m always ready for anything. Better said, my trading systems are ready to identify candidates in any market condition.
The bottom line though is to not get sucked into the never-ending stream of news predicting rainbows or doom and gloom.
So, what should you do?
Keep on keeping on. Follow your rules-based systems. Let the systems tell you what to do or not do.
If you’re concerned that the markets may respond negatively to this prediction in 2019, look for bearish technicals like:
- Breaks of support/resistance on above average volume.
- 50-day moving average (MA) crosses below 200-day MA.
- Reversal indicators like Stochastics, RSI and ADX (see past articles).
If you see bearishness, consider buying OTM puts on the S&P 500 ETF (NYSE: SPY) or on individual stocks if you wish to hold them.
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