Timing & trends
….one that will set the stage for the Dow Industrials to launch much higher, to over 31,000 in the years ahead.
I have been warning that there would be a sharp, sudden pullback in the stock markets before the real bull market begins. It’s here. It started last week. It’s going to be ugly at times. And it’s going to end later this year with almost everyone throwing in the towel, which of course, will be the time for you to back up the truck and buy big.
So that you know exactly what is going on and can be fully prepared for what’s coming, let me explain a few things:
First, stocks are not overvalued. That is not the reason the market is falling. It would be true if a dollar was worth what it was a few years ago, or 10 years ago. But the dollar is not worth what it was years ago.
That means corporate earnings can’t really be measured in nominal terms anymore. They must be adjusted for incipient inflation. And when you do that, you’ll find that corporate earnings are actually undervalued.
So much so that in nominal terms, for the Dow to catch up with the changes we have seen in the value of money over the past 12 years alone, it would have to rally to a minimum of 26,570.
Second, rising interest rates are not the problem either. I’ve explained this before, and I’ll mention it again: Stocks are not falling because interest rates are rising or because the Federal Reserve is tapering its bond purchases and starting to take away the punch bowl, so to speak.
That’s hogwash. Throughout history, most major bull markets in equities — and commodities, for that matter — occur when interest rates are rising.
The reason for that is simple: If the cost of money and credit is rising, then typically the economy is growing. And if the economy is growing, so is consumer demand, industrial production and so forth.
There are other reasons interest rates rise, of course, like rising inflation. But that too is bullish for equities, not bearish.
There are only two situations where interest rates are bearish for equities and none of them apply to the equity markets at this time. One is if interest rates rise to well above the current rate of inflation, such as when Volcker pushed rates to 20 percent in 1980.
The other is when there is a systemic failure of some sort and there is no money or credit to be had, at any price.
We’re not at those points yet, not by a long shot. We will get to them some day, but not for many years to come.
Third, technically and cyclically, a pullback is perfectly normal and must occur before the markets can head any higher.
Whenever a market moves up into new territory, to uncharted waters, there is inevitably a pullback to test the former pressure points, or the origin of the move.
As you can see from this long-term monthly chart of the Dow Industrials, the breakout has been significant.
Moreover, a move back to the points of origin of the breakout is perfectly normal. Those support levels on the monthly chart lie at 15,180, 14,000 and 13,400.
Those are simply technical chart support levels. The real support for the Dow will come into play at my system reversal levels, which are 14,687.05 … 14,373.32 … and 14,030.37.
Bottom line: I expect the Dow to fall to the 14,000 to 14,373 level during this temporary bear market.
How long will this bear market last? That’s a key question for sure. For that, we turn to timing models. Here is the latest cycle chart for the Dow.
Notice first, the sell signal it generated on Jan. 24. That was day one of the breakdown.
Posted by Larry Edelson
– See more at: http://www.swingtradingdaily.com/2014/02/03/what-to-do-before-the-real-bull-market-in-stocks-begins/#sthash.66cIDpkK.dpuf
Bearish rhetoric is once more reaching extremes FOLLOWING the tumbling of stocks to new recent lows, a decline that many market commentators have once more latched onto as a consequence of Fed Tapering of QE or more accurately money printing, this despite the fact that the stocks soared in response to the last December Taper decision which was a surprise for the markets whilst the January Taper move was expected.
Whilst at the present time I remain firmly immersed in the analysis of the housing markets as I attempt to get my latest ebook in the exponential inflation mega-trend series completed this month, as I have plowed most of my wealth into the UK housing market since early 2012.
However, I do still retain a sizeable 18% of assets invested in the stock market, so like most out there it would be useful to know whether the current sell off is a buying opportunity or not or whether it is an harbinger of the dreaded trend change that I have yet to acknowledge as a termination of the bull market trend that I have backed for the past 5 years duration of this stocks stealth bull market that began in March 2009 (Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 ).
So first I refer to my last analysis of the stock market of mid November 2013 which laid out my expectations for the Dow over the following 4 months into early March 2014 as excerpted below –
11 Nov 2013 – Stock Market Forecast 2014 Crash or Rally? Drone Wars and the Nuclear Apocalypse
I expect the Stock market to break above the upper channel of Dow 15,770 and be trading above 16,000 by late December. Furthermore my analysis suggests that despite a volatile January that will likely bring forward many bankrupt doom merchants, the stock market will likely continue its rally into March 2014, when it is highly probable that the Dow will be trading above 17,000!
….continue reading HERE
Recent price action in the stock market has many traders on edge. With the market closing below our key support trend line last week, the market has now technically starting a down trend.
While trend lines are a great tool for identifying a weakening trend and reversals in the market, I do not put a lot of my analysis weighting on them.
Most of my timing and trading is based around what I call INNER-Market Analysis (Market Stages, Cycles, Momentum and Sentiment). Using these data we can diagnose the overall health of the market. Knowing the strength of the market we can then forecast short term trend reversals before they happen with a high degree of accuracy.
In this report I keep things clean and simple using just trend lines. During the last three weeks we have seen the price of stocks pullback. And because 2013 was such a strong year for stocks most participants are expecting a sharp market correction to take place anytime now.
So with the recent price correction fear is starting to enter the market and money is rotating out of stocks and into the Risk-Off assets like gold and bonds.
Stocks tend to fall in times of economic uncertainty or fear. These same factors push investors towards the safety trades (Risk-Off) high quality bonds and precious metals. As more money goes from risk-on to risk-off, stocks will continue to fall and the safety trades will rise. The move by investors to select the safety of gold and bonds compared to the volatility of stocks will result in these risk plays to moving in opposite directions.
Let’s take a look at the chart below for a visual of what looks to be unfolding…
How to Trade These Markets:
While these markets look to be starting to reverse trends, it is critical that we understand how the market moves during reversals and understand position/money management.
Getting short stocks and long precious metals in the long run could work out very well, but if you understand the price action that typically happens during reversals you know that the stock market will become choppy and we could see the recent highs tested or possibly even a new high made before price actually starts a down trend. And the opposite situation for gold and bonds. Drawdowns can be huge when investing and why I don’t just change position directions when the first sign of a trend change shows up on the chart.
Price reversals are a process, not an event. So it is important to follow along using a short term time frame like the daily chart and play the intermediate trends that last 4-12 weeks in length. By doing this, you are trading in the direction of the most active cycle in the stock market and positioned properly as new a trend starts.
What I am looking for in the next week or two:
1. Stocks to trade sideways or drift higher for 3-6 days, then I will be looking to get short. Again, cycle, sentiment, and momentum analysis must remain down for me to short the market. If they turn back up I will remain in cash until a setup for another short or long entry forms.
2. Gold remains in a down trend but is starting to breakout to the upside. I do have concerns with the daily chart patterns for both gold and silver, so next week will be critical for them. We will be using some ETF Trading Strategies to take advantage of these moves.
3. Bond prices (not yields) look to be forming a bottom “W” pattern. They have had a big run in the last few weeks and are now testing resistance. I think a long bond position is slowly starting to unfold but if we look at the futures price charts for both bonds and gold, they have not yet broken to the upside and have more work to do. As mentioned before ETFs are not really the best tool for charting but I show them because they what the masses follow and trade.
Get these reports every week free at: www.GoldAndOilGuy.com
Chris Vermeulen
Author of “Technical Trading Mastery – 7 Steps To Win With Logic”
Argentina Central Bank Bans Imports Due to Lack of Dollars; Argentina to Apply “Iron Fist” to Those Who Raise Prices
As reserves run dry, demand for dollars soars in emerging market countries, prompting inane economic actions.
Via google translation from Libre Mercardo, please consider Argentina Cerntral Bank Bans Imports Due to Lack of Dollars.
The fourth day of falling reserves has the Argentine central reeling. This Wednesday reserves fell by 180 million and this month reserves declined by $2 billion. Due to demand and the low level of foreign exchange reserves, the central bank has stopped payment of imports, according to Argentine newspaper La Nacion.
“Almost all the customers who went to the bank did so to hoard dollars,” claimed the cashier of a national bank to the southern newspaper.
“Today almost no imports were approved import” confided the head of the table of a major bank in the nation.
Argentina to Apply “Iron Fist” to Those Who Raise Prices
Via translation from El Economista, please consider Argentina Threatens to “Get Tough” on Businesses that Raise Prices.
Economic war has moved to Argentina. The Argentine government said it will apply an “iron fist” against the shops and businesses that raise prices following the sharp devaluation of the local currency last week, hoping to avoid tripping high inflation in the country.
Argentina has one of the highest inflation rates in the world, which in 2013 was around 25% according to private estimates.
Prices of products with imported components such as appliances and vehicles rose immediately after the devaluation. Moody’s expects a devaluation of the Argentine peso 50% in 2014.
Before the devaluation, the Government launched a plan to fix maximum prices on about a hundred products sold in supermarkets. But the incentive is limited and includes products that are hard to find on the shelves.
Simple Rules
Fix prices too low and there will be no supply. Stores will not sell at a loss. Set prices too high and sellers will come out of the woodwork.
For an example of the latter, please see China Abandons Disastrous Cotton Stockpiling Program; Lessons Not Learned; What About Stockpiling Money?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Related: Barcelona to Fine Owners of Empty Homes 100,000 Euros
Read more at http://globaleconomicanalysis.blogspot.com/#f6QvEIWVhlOEWKQ0.99
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