Tuesday, October 26, 2010

Stock Market Myths Debunked

I got bored today while the Money Managers held the market up into the end of the month (window dressing) in order to give the illusion - by showing a high balance on their monthly statements (come out on the 1st of the month) - to show that there are big gains to be made by continuing to invest long term. I'm not sure why the SEC looks the other way during this kind of illegal activity, but maybe they'll take notice once the retail investor catches on to their little game.

Stock Market Myths Debunked

1. "The market doesn't like uncertainty"

The market actually does like uncertainty, as evidenced by the latest rally. Most investors have no idea what's going to happen in Washington with a lame duck congress in place, let alone who will hold a majority after the election. We also don't know what the fed is going to do, as if it matters. We are already at 0 interest rates, and it hasn't seemed to help the so called "recovery".

The future of the Euro and the Euro-zone is still in question, but the market doesn't seem to mind.

The future of the housing market is more than ever, uncertain, but the market doesn't seem to care about the consequences...

The Bank CDO market, and the survivability of the entire banking sector is uncertain,
just as it was when foreclosures rose during the sub-prime crises. Nobody has been able to even place a value on toxic derivatives, but who cares?

Future growth and earnings are uncertain.

The list goes on, and on, but the market loves it!

2. "Treasuries don't provide the return that equities do"

Treasuries do provide a return, whereas equities may or may not... so treasuries actually have value, and will provide a better return when a market, or the civilization that drives that market, is in decline. Nobody ever lost their entire nest egg investing in treasuries.

3. "The market will be held up by the PPT or some other invisible force"

If this were true crashes would be a thing of the past, yet the crashes continue. Where was the PPT in 07-08? The PPT is real, but their job is not to hold the market up when it's already near recent highs. Watch for them to come in around SPX 300.

4. "Equities have real value here"

Many fall into the value trap, and end up holding their losing positions all the way down, to zero in some cases. The equities market is a market like any other market, in which the value is determined by the highest bidder, not some theoretical PE ratio. In a crash all stocks are sold at any cost, so it could be said that equities have 0 value, or at best only a perceived value.

5. "The Market can stay irrational longer than you can stay solvent"

This is a good way to try to scare people out of their position, but the market never stays irrational for very long. I haven't covered 1 share over the past month, until I took a small profit a couple days ago, and I'm plenty solvent, and as long as the charts tell me wave 3 is in play I will stay short. If you can't learn how to patiently build a position, by buying/selling into strength/weakness, into a top/bottom you will never win at this game.

I suspect that certain members of the federal reserve bank, and their associated hedge funds, have simply used this earnings season as a final opportunity to shake out some weak handed shorts, while at the same time sucking in every last retail investor, before they rob the wealth of America, as they did in the last depression... and throughout history. All I would need to see next week to confirm this believe in my mind, is for the fed to surprise the markets next week by tightening, or even pulling the QE2 rug out, but all that I write is only the opinions of the author (disclaimer).

6. "The Market is forward looking"

If the market is forward looking then the market would only rally on future perceived earnings, not backward looking earnings, helped by frivolous government spending, short-term dollar weakness, and cost cutting.

7. "The federal reserve will hold interest rates low"

The market actually sets interest rates, and the federal reserve follows the markets lead. Interest rates may be historically low right now, but the market wants higher interest rates, as evidences by the inflation play, and just this year: "Chairman Ben Bernanke set the stage for higher interest rates here in the US; explaining in written testimony that in “due course” the Fed will “begin to tighten monetary conditions to prevent the development of inflationary pressures.” Source cnbc: End of an Era: No More Easy Money?

8. "The Dollar is weak"

I suppose this is a way for the news media to try to convince the average investor, and the public at large, that we are not in a deflationary spiral, or as the spin doctors like to call it, "a negative feedback loop", or perhaps something has been added to the water supply in order to block folks long-term memory. The Dollar has actually continued to strengthen over the past 2+ years, and it's going to rip again, as the global meltdown continues.
$USD - Weekly Candlesticks: "

via StockCharts.com

"

9. "We are passing this debt on to our children"

If the Baby Boomer's can't pay their own way, what makes anyone believe that their children are going to pick up the tab. Are we expecting a population boom, followed by another round of industrial and technological booms? If not, then we are using this phrase as an excuse to continue subsidizing a bankrupt generation.

10. "We are in a recovery"

I think the Bulls have said this so many times they actually believe it themselves, but to those who have bought into this rally over the past 18 months, and still holding... to believe otherwise is unacceptable to them. It would mean that the decades of greed is dead, and that they will soon be the next to join the ranks of the unemployed, and their wives may no longer have any reason to put up with them. Most money managers would prefer to jump from their office windows, and many more will before we see a real recovery. Recovery will come when nobody expects it, and when few are looking for it. Recovery will come when most have given up on recovery.

Wednesday, October 13, 2010

Tuesday, October 12, 2010

When Cramer says "don't worry" you better start worrying

I don't usually watch Cramer, but I happened to catch him this evening declaring victory after today's big 10 point rally lol

He was telling his fans not to worry, and that the people who are worried - like myself - I suppose - (because I attempt to keep my members out of harms way)- have missed the boat, and caused others to do the same, and about to lose their clients. The truth is I'm happy to miss a 120 point rally on the Dow, when the risks far out way the reward. It's not the 10 point Dow rally I'm worried about it's the continuation of the flash crash (wave 3).

I believe there is good reason to be worried, when the pied piper of stock land tells you not to worry. The fact that someone would say such a thing should alert you to the fact that he is worried. After-all people who aren't worried don't usually feel like they have to go around announcing it to everyone.

If my record was less than 50% accurate as "By most measures (in 2009), Jim Cramer did worse than the market" (Source Barrons) I'd be worried too. Cramer had a good record during his hedge fund days, but I believe a stock picking monkey would have done at least as well during the 1990's bull. I would give my left nut if I could go back in time and trade in the 90's - knowing what I do now - but I have to trade the market we have.

As long as Obama's darling General Electric continues to pay Cramer's salary, while giving him a public voice via CNBC cable television, the poor retail investor will continue to be led down primrose path, and whether they win or lose Cramer is sure to keep his cushy job.

I on the other hand would expect to lose at least 50% of my membership if I'm wrong even 40% of the time. I feel I'm already on thin ice, after calling the top again today, but the evidence is indisputable, take it or leave it.

I suppose, because Cramer used to make his living crushing the same investors he now claims to help, he feels like he has a bone to pick with the shorts, but I think most shorts don't behave unscrupulously. After all the crash of 08 (wave 1) was mainly the result of longs liquidating their positions, in the form of fund redemption's, and the shorts who sold certain banks to 0 (zero) only did so, because they are in fact bankrupt.

I get the feeling many hedge funds are afraid to short this market, because they saw what happened in 09; rules can be changed to prevent shorting regardless of valuation, and to be honest it's a crowded trade, because of the recent emergence of the retail short. Short selling used to only take place on margin, but since the emergence of the short ETF, everyone thinks they have the wherewithal, and the determination to be a short seller. The bears have always been traditionally out-numbered 10-1, so this has never been an easy business, and just as it is in Las Vegas, when you're shooting from the don't pass, all the players who are betting on the pass line, are out to get the don't-better.

Monday, October 11, 2010

I have some questions about the (so-called) "recovery"

Since I answered all (and I haven't screened anyone) the questions posed by (mostly) upset bulls who have been on the losing end of the trade for over 10 years now, in the spirit of fairness, I thought I'd ask some questions, and then post your answers.

1. If money printing is the answer, why hasn't the Zimbabwe economy recovered?

2. We've all heard Obama say "green energy" is the answer to the recovery. Would you spend $42k for an electric car, and how long before this new technology is affordable to the average Joe?

3. If Electric is going to replace gasoline, what happens to the oil industry?

4. Since clean electric is supposed to replace gasoline, can I expect my electric bill - which has already gone up 1000% (from $30 to $300) over the past 20 years - to skyrocket in the future?

6. If oil is on the decline (due to Obama's recovery plan) who will replace Saudi Arabia as one of the main purchasers of US treasuries (debt)?

7. Almost everyone believed tech, and the housing market would continue on an upward trend forever. What makes the people who believe the same thing about the equities market, and the gold trade, any different in today's market?

8. Since the investment class (the baby boomers) are retiring, and the population in decline, where is new investment capital supposed to come from?

9. If market manipulation is the answer, why hasn't it worked in Japan? Do you simply believe we are we smarter than the Japs? Note: I only use the derogatory term "Japs". because you would need to have a racist point of view to believe such a thing.

10. Some people have claimed that wave 2 can't result in a triangle pattern. Are you ready to concede you were only lying about the known and documented Elliott Wave Rules, in order to pump your bullish position?

11. Jim Cramer says the market has broken out into an inverse head and shoulders pattern, do you believe him, even though the accepted literature says otherwise (must be confirmed by volume on the breakout)?

12. Now that China has replaced the US as the #1 global economy, how can the US benefit. Do you expect America to become an export economy again.

13. I've heard many traders who are much more experienced than I say, the current rally is due to the fact that fund managers must put money to work, and other traders attribute the strength of this rally to the shorts being squeezed. At what point do the fund managers run out of ammo, and why haven't we seen high volume if shorts are covering?

14. Would you rather continue lose money on the long side (as most investors have done over the past decade), than make money on the correct side of the trend? In other words is investing like a sport in which you root for your home team, regardless of whether they continue to lose year after year?

15. Who is the fed (historically), and who's best interest do they have in mind?

Wednesday, October 6, 2010

Further fed easing won't spur growth (re-edited)

I'm sure this is a shocker for the Bulls, who have now fallen in love with the commodity trade, as they continue to price in some future hypothetical US Dollar destruction, but hyper-inflation and inflation are 2 different things, and during a currency crises, the $USD is your best safe haven, not gold, not oil, not corn, not cotton.

Until the fed finds a way to force folks to spend their money, as they have over the past 70 (boom) years the market will continue to contract, because money printing in itself, doesn't cause the velocity of money to increase.

And even "If" the fed, or the government, does step in, they are likely do so at a capitulation market bottom (as they did at SPX666), not at a capitulation top at the end of a wave 2 (where we are today give or take a few points).

I removed (several weeks ago) this chart from my published charts, during the latest rally, because it's hard enough holding into rallies like this, without staring death in the face.... You can see on this long term chart, I also called the top of primary wave 2 a little early, but a wave 3 isn't something you play chicken with, as evidenced by the flash-crash, but the flash crash was only a shot across the bow, and the 08 crash only the 1st inning.

Wave 1's typically look like a pullback to be bought, and this one was no different. This is why Elliottician's refer to wave 2's, as suckers rallies;
take a good long look at what these dreamers just bought into:
$SPX - Weekly Candlesticks: "

via StockCharts.com

"

If a small wave E can rally 120 points in a just few weeks, the same market can lose half it's value (500+ SPX points) in an intermediate wave 3 of a primary wave 3 , in the same amount of time, but actual time-lines are somewhat unpredictable.

Monday, October 4, 2010

We made the Hall of Fame!

I didn't want to announce it until I had confirmation, but I just got
the email from stockcharts.com. I'm psyched!

We should have confirmation of wave 3 tomorrow. The bulls are in love
with the upside, but the smart money has already sold and gone short,
while the MM's were forced to put money to work over the past couple
days.

The market does what it will on its own time line

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