Has the Market Crash of 2025 just Started? (a major warning signal)

Summary

In this video, trader and analyst Manuel BL discusses the implications of a recent Dow Theory sell signal for the stock market and Bitcoin. He explains that while this sell signal indicates a potential decline of 11% on average, it doesn't necessarily mean a bear market is imminent. Manuel advises selling 50% of holdings based on the signal, but he remains optimistic for the next few months, expecting a rally before a possible downturn in the second half of the year. He emphasizes the importance of following probability-based strategies and adhering to trading rules.

Takeaways

• 😀 The Dow Theory sell signal, triggered on March 3rd, indicates a potential market decline of up to 11% following the signal.
• 😀 A Dow Theory sell signal does not guarantee a bear market but increases the probability (60%) of one developing in the next several months.
• 😀 Manuel recommends selling 50% of holdings based on the Dow Theory sell signal, while retaining the other 50% in the market for potential re-entry at a lower price.
• 😀 The probability of a bear market after a Dow Theory sell signal is 60%, but it doesn’t always guarantee a full bear market, which is defined by a 20% decline.
• 😀 A bear market is not imminent, but the sell signal serves as a warning for potential market decline, especially with margin debt still being a bullish indicator.
• 😀 Market corrections and volatility can present tradable opportunities, with Manuel following a flexible approach to capitalize on statistical probabilities.
• 😀 Although there is a potential for short-term corrections, there is still a chance for the market to rally for a few months before a possible downturn later in the year.
• 😀 The risk of a further decline increases, with a potential drop of 11% on average, and a higher risk of recession (27%) after a Dow Theory sell signal.
• 😀 Manuel's prediction is that the market will undergo a secondary correction followed by a rally until mid-2025, after which the outlook turns more bearish due to macroeconomic factors like an inverted yield curve.
• 😀 The use of statistical probabilities allows traders to make informed decisions, and while there’s always risk involved, trading with discipline over time leads to positive equity growth.

Q & A

What is the Dow Theory Sell Signal and what does it indicate?

The Dow Theory Sell Signal is a market indicator that suggests a possible downturn in the market. It is triggered when both the S&P 500 and Dow indices show a significant decline after an uptrend. It serves as a warning that the market could decline further, often by an average of 11%.

What does the Dow Theory Sell Signal imply about the probability of a Bear Market?

After a Dow Theory Sell Signal, there is a 60% probability that a Bear Market will follow. This means that while it does not confirm a Bear Market, it significantly increases the likelihood that the market could decline by 20% or more.

Is the Dow Theory Sell Signal a confirmation of a Bear Market?

No, the Dow Theory Sell Signal does not confirm a Bear Market. It is a warning signal that suggests the market could continue to decline, but it doesn't necessarily mean that a Bear Market has started.

What should a trader do when they receive a Dow Theory Sell Signal?

A trader does not necessarily sell everything but may choose to reduce their market exposure by around 50%, as the signal indicates a significant potential for further decline. The goal is to profit from the anticipated drop by re-entering the market at a lower price.

What are the key factors contributing to the recent market decline, according to Manuel?

Manuel attributes the market decline to factors such as tariffs, uncertainty in the market, and a Dow Theory Sell Signal that was triggered on March 3rd. These factors create a bearish sentiment, suggesting a possible further decline.

What is the relationship between margin debt and market behavior, as discussed in the video?

Margin debt plays a key role in market trends. Manuel mentions that increasing margin debt often signals a bullish market, as it suggests that traders are borrowing more to invest, thereby driving up market prices. However, if margin debt trends change, it could trigger a sell signal.

Why does Manuel suggest that the market might rally in the next few months despite the sell signal?

Manuel believes the market might rally in the short term due to the continued positive margin debt and liquidity levels, which suggest that the market could experience a temporary correction followed by a rally. However, he cautions that the market could face challenges after mid-year.

How does Manuel handle risk when following the Dow Theory Sell Signal?

Manuel manages risk by selling 50% of his holdings when a Dow Theory Sell Signal is triggered. This reduces his exposure while still allowing him to profit from a potential market rebound. He emphasizes flexibility and discipline in trading, adapting to changing market conditions.

What is the expected market behavior after the Dow Theory Sell Signal, according to Manuel?

Manuel expects the market to experience a short-term decline of about 7-11% after the Dow Theory Sell Signal, with a potential for a bounce in the coming months. He remains cautiously bullish for the first half of the year but anticipates a more complicated second half.

Why does Manuel focus on probabilities rather than certainties in his market analysis?

Manuel emphasizes probabilities because the market is unpredictable, and trading based on probabilities allows him to manage risk effectively. By focusing on statistical patterns, he can make informed decisions and prepare for various possible outcomes.