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How You Could Have Made A Fortune Shorting The Nasdaq

stock market cycle

Continuation from yesterday……(The Composition Of 2000 -2017 Bear Market)

Investment Strategy #2: What Most People Did  (The Reality….Worst Possible Outcome).

Think about the following for a second. While “Buying & Holding Forever” is a nice catch phrase, very few investors out there can do so consistently. For instance, how many people do you know that were able not only to hold on to most of their stock positions during the bear legs of 2002 and 2008, but to add to their positions during the time. Chances are, not many.

For the purposes of this discussion, let’s assume that ….

  • You were fortunate enough to originate your position in November of 1994. Right before the final 600% run up took place.
  • Subsequently, you sold out half way through all of the bear legs and bought back in half way thought all of the bull market legs.

… which should be lot better than what most people were able to accomplish during this difficult time.

Given the circumstances above, your total ROI should have been around 425% by September of 2014 and approximately 320% by the time the bear market of 2014-2017 completes itself. Yielding a net annualized rate of return of 8.5% and 6.5% respectively. Not bad, but once again, buying and holding a 30-Year US Treasury in 1994 would have outperformed this gut wrenching speculation in Nasdaq by a fairly good margin.

Investment Strategy #3: Buy Low, Sell High, Go Short and Cover

As was suggested earlier, based on the cyclical composition within the stock market you should have been aware that the last phase of the 1982-1999/2000 bull market was about to start. In addition, you should have been aware that the upcoming cycle is likely to develop as a powerful “blow-off top” 5-Year cycle.  Leading you to initiate a long position in November of 1994.

Trade #1:  Go long in November of 1994 at 720 on Nasdaq.

As October and November of  1999 rolled around, any investor familiar with the cyclical composition of the stock market should have been aware that a bull market was ending and that a 17-18 year bear market was about to begin. As a result, such investors would have been looking for any sign of a top and an opportunity to reverse position.

The first sign of a top occurred in early January of 2000 when the Dow topped out at 11,850. Exactly 5 years and 35 trading days after the cycle began in November of 1994. Yet, despite the Dow’s sell-off between January and March of 2000, the Nasdaq kept surging higher. Setting a blow off top in the process.

Believe it or not, that was an optimal outcome and a trade setup. This divergence should have been a clear sign that a blow off top was forming and that a market crash was likely once the top on the Nasdaq was set and confirmed. In fact, investors familiar with the cyclical composition above should have been watching the market like hawks for any sign of a top and bearish reversal. Ready to liquidate their long positions and go short at a moment’s notice.

To Be Continued On Monday…….

Z31

How You Could Have Made A Fortune Shorting The Nasdaq Google

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Did Apple’s Bending Phone Caused Today’s Meltdown?

daily chart Sept 25 2014

9/25/2014 – A big down day with the Dow Jones down 264 points (-1.54%) and the Nasdaq down 88 points (-1.94%).

It took the market just 30 minutes to retrace the big gains from yesterday. In the process, all markets opened up a big up gap in the morning. A gap that the market will have to close at some point in the future.

On top that, today’s market action did a lot of damage to the overall market and its structure. And while only Russell 2000 is now in a clear technical downtrend, today’s action brings out a number of important questions that both bulls and bears should consider.

Primary, is this the start of something more or this your typical 2-5% correction that should be over fairly soon?    

Unfortunately, it is an impossible question to answer if you are relying solely on fundamental analysis and a next to impossible question to answer (at this stage) if you are to add technical analysis into the mix. With more divergences in most markets than hookers in Amsterdam, the market is essentially free to either stage a massive bounce here or to go through an outright collapse.

A better analytical tool is a must. As such, I suggest you check out my timing and mathematical work as soon as possible if you would like to know what happens next. To start, please CLICK HERE

(***Please Note: Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. September 25th, 2014 InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Did Apple’s Bending Phone Caused Today’s Meltdown?  Google

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The Composition Of 2000 -2017 Bear Market

nasdaq

Continuation from yesterday…….(Short-Term Cyclical Composition Of The Stock Market)

Once the 2000 top was reached the market was doomed to repeat the next secular bear market cycle ending in 2017. This bear market was kicked into high gear with a sell of 2000-2002, during which the Dow lost 40% of its value and the Nasdaq crashed 80%. The initial sell off was followed by an exact 5 Year and 1 trading day bull market cycle. Terminating on October 11th, 2007.

What followed was a mid-cycle sell off of 2007-2009. Such sell offs typically represent the fastest and the deepest moves down during any secular bear market cycle.  We saw the same mid cycle sell offs develop in all previous bear markets.  For instance, the crash of 1907 was the mid cycle panic of 1899-1914 bear market, the crash of 1937 was the mid cycle sell off of 1929/32-1949 bear market and the massive sell off of 1972-1974 was the mid cycle point of 1966-1982 bear market.

When the mid cycle panic bottom was reached in March of 2009 the market turned around to stage the next 5 Year rally of 2009-2014. Thus far, this 5 year bull market cycle has lasted 5.5 years, the longest since the 5.5 year cycle of 1924-1929. Leading many to conclude that a secular bear market ended in 2009 and we are now in a long-term bull market.

Unfortunately, there is no evidence that secular bear markets last only 9 years. On the contrary, since the stock market first started trading in May of 1790 all bull/bear market cycles repeated in a clearly defined 15-20 year patterns. Today’s environment is not very different. In fact, most bear markets end with 2-3 year bear legs.  For example, 1912 to 1914, 1946 to1949 and 1980 to 1982. When we combine this information with the overall composition of the stock market described earlier, it becomes clear that a bear leg of 2014-2017 is essentially imminent.

Once again, the cyclical composition background above in necessary for understanding today’s environment and its application to various investments strategies one could have implemented during the time.

In November of 1994 (our starting bottom) the Nasdaq was trading at approximately 720. Let’s now take a look at 3 different outcomes or investment strategies to determine which one was the best.

Investment Strategy #1: Buy and Hold. (Middle Path).

If you would have invested in November of 1994 and held though today (September of 2014 with the Nasdaq is at 4,500), you would have generate a ROI of 525%. Representing an annualized compounded rate of return of approximately 9.5%. Not bad.

However, if we are to account for an upcoming bear market of 2014-2017, in the best case scenario the Nasdaq ends at 3,000 by 2017. Yielding a ROI of 316% or just 6.5% a year. Still not bad, but it seriously underperforms buying and holding a 30-Year US Treasury Bill that was yielding 8% in November of 1994.

To Be Continued Tomorrow…….

z32

The Composition Of 2000 -2017 Bear Market Google

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Why Both Bulls & Bears Will Miss The Upcoming Bear Market

daily chart Sept 24 2014

9/24/2014 – A strong up day with the Dow Jones up 154 points (+0.90%) and the Nasdaq up 46 points (+1.03%). 

The stock market continues to perform as anticipated. I had a heated discussion with a Perma Bull last night. That led to an idea for today’s update and the reason why 99% of all bulls and bears will miss the upcoming bear market.

During our discussion the Perma Bull suggested that he will be able to get out of the market as soon as the bear market starts, hedge with put options, blah, blah, blah…..

The reality is very different. The psychological framework behind today’s market will prevent ALL from either avoiding or participating in the upcoming bear market. Today, this mindset is very straight forward.

  1. For Bulls this market will never go down. Every sell off is recovered within a relatively short period of time and everyone is proclaiming that this secular bull market has another 5-10 years to go. Despite the fundamental backdrop, the only way is up. Climbing the wall of worry….right?
  2. For Bears this market has been an absolute disaster. In simple terms, the bears are scared shitless of this market. No wonder investor survey reveals that the % of bearish investors are at an all time low (since they started tracking the metric in 1985)

Interestingly enough, both mindsets lead to the same kind of thinking and to the same eventual outcome when the bear market begins to develop. Leading to massive bullish losses and forgone opportunities for the bears to profit. Here is how it will play out. It always does.

  • First 5% decline mindset:  This is just a simple correction. Bulls don’t sell, bears don’t initiate short positions.
  • 5-10% decline mindset: This is the 10% correction everyone was talking about. Bulls don’t sell, bears don’t initiate short positions.
  • 10-20% decline mindset: Darn it. This is that 20% correction that was overdue. Too late to sell now, its time to buy more. Too late to go short now, the move is almost over.
  • 20-30/40/50%: F$%*. Bulls begin to panic while selling at a loss. Bears begin to short, without realizing that it is too late to short (future losses are probable).

As you can see, today’s mindsets for both bulls and bears will lead to significant losses when the upcoming bear market of 2014-2017 begins to develop. If you would be interested in avoiding this faith and learning when the bear market of 2014-2017 will start (to the day) and its internal composition, please CLICK HERE

(***Please Note: Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. September 24th, 2014 InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Why Both Bulls & Bears Will Miss The Upcoming Bear Market  Google

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Short-Term Cyclical Composition Of The Stock Market

stock market cycleContinuation from yesterday……..(Cyclical Composition Of The Stock Market)

THE 5 YEAR CYCLE IN THE STOCK MARKET

One  other easily identifiable cycle within the stock market is the 5 year cycle. These 5 year cycles represent one completed growth pattern or one completed Bull or Bear cycle. Typically, they tend to appear for 5 years, disappear and then reappear at a certain point in the future. And while they are not as sequential as the 17-18 year cycle above, once their place within the overall stock market is understood, they show up at exactly the right time.  For instance, …..

  • 1914 -1920: Bull Market
  • 1924-1929: Bull Market (followed by a 1929 crash)
  • 1932-1937: Bull Market (followed by a 1937 crash)
  • 1937-1942: Bear Market
  • 1966-1971: Bear Market
  • 1982-1987: Bull Market (followed by a 1987 crash)
  • 1994-2000: Bull Market (followed by a 2000 crash)
  • 2002-2007: Bull Market (followed by a 2007 crash)
  • 2009-2014: Bull Market

One thing to understand about these 5 Year cycles is that they are exact. They have much lower level variance as compared to their longer counterparts. Essentially, we are NOT talking about 5 years +/- 6 months. We are talking about 5 years +/- a few days. For instance, the 2002-2007 cycle started on October 10th, 2002 (at 2002 bottom) and terminated on October 11th, 2007. If you are counting, that is exactly 5 Years and 1 day.  In other words, scary accurate. I encourage you to study the other cycles outlined above in order to prove to yourself how shockingly accurate they all are.

With such cyclical understanding clearly imbedded in our minds, we can now apply this work to our analysis. Those familiar with the 17-18 year cycle would have known that the most recent secular bull market started at a clearly defined long-term bottom in August of 1982. Thereafter, by applying 1st grade algebra, any investors should have figured out that this secular bull market is likely to end sometime in 1999 or 2000.

Further, an analyst familiar with the cyclical composition of the stock market would have been aware that most secular bull markets end with powerful 5-Year run ups.  Represented, of course, by the 5-year cycle. For example, 1924 to 1929, 1961 to 1966 and 1994 to 2000. As such, it would have prudent to assume that a secular bull market of 1982 to 1999/2000 would end in exactly the same fashion.

More credence towards this scenario would have been obtained by studying the stock market in 1994. The market topped out in early February and then sold off into the end of March. Recovering somewhat between March and September before initiating its final sell off into November 23rd, 1994.

Thereafter, by simply adding a 5-Year cycle to the date of this November bottom, an analyst would have been able to ascertain that the stock market would likely top out around the end of November of 1999 +/- a few months. As you very well know the actual top had occurred in January of 2000 on the Dow and March of 2000 on the Nasdaq. Not a bad analytical tool considering that it took two simple cycles, some grade school algebra and about 15 seconds to figure it all out.

To be continued tomorrow…….

Z30

Short-Term Cyclical Composition Of The Stock Market Google

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Day Trading Grandma Makes A Small Fortune

daily chart Sept 23 20149/23/2014 – A down day with the Dow Jones down 116 points (-0.68%) and the Nasdaq down 19 points (-0.42%). 

A great market summary in today’s MarketWatch Article Everyone is a genius in a Fed-induced stock rally

A few important points if you don’t feel like reading. 

  • Everyone and their day trading grandmother believe that they are geniuses. Mostly because the market hasn’t had a real correction in over 5 years.
  • Most investors are high-fiving each other because they are making so much paper money.
  • Amateur investors and financial commentators are openly insulting well researched bears.Including market pros like Marc Faber and Bill Freckenstein.
  • Most bears have given up.
  • Everyone is predicting the Dow 18K, 20K, 25K, etc…..

Understandably, it is incredibly difficult to remain bearish in such an environment. Yet, despite the uptrend and all the bullish hoopla, it is important to remember that no one expects a bear market to start when it actually starts. And you don’t have to go further than October 11th of 2007 in order to see this principal in action. Jesse Livermore was right on the money when he said, “To make big money you have to sit alone and wait.”

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2014-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2014-2017 will start (to the day) and its internal composition, please CLICK HERE

(***Please Note: Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. September 23rd, 2014 InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Day Trading Grandma Makes A Small Fortune Google

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Cyclical Composition Of The Stock Market

Long Term Dow Structure3 Continuation from yesterday……(Buy Low, Sell High, Go Short & Cover Case Study)

  • 17 Year BEAR Market (1932 bottom to 1949 bottom): The cycle originated at the bottom in July of 1932 and lasted until June of 1949. During this period of time we had a post great depression bounce, 1937 crash and the World War 2. Yet, despite the overall upward trajectory, this clearly defined 1949 bottom remained 60% below its 1929 top and well below both its 1937 and 1942 tops.
  • 16.5 Year BULL Market (1949 bottom to 1966 top): The market surged higher between 1949 bottom and 1966 top. This was the so called “Golden Age” of post war reconstruction and the American industrial boom. During this time the Dow appreciated over 500% in a clearly defined bull market cycle.
  • 5 Year BEAR Market (1966 top to 1982 bottom): The market stayed relatively flat during this period of time with a few notable declines of 30-50%. With the 1972-1974 mid cycle decline of 54% being the largest one.  This clearly defined bear market completed in August of 1982. Approximately 25% below its 1966 top.
  • 17.5 Year BULL Market (1982 bottom to 2000 top): A very well known period and a clearly defined bull market. The market surged higher from its August of 1982 bottom to reach its historic top in January of 2000. During this time the Dow appreciated over 1,400% in one of the strongest bull markets in history.
  • 17 Year BEAR Market (2000 top to 2017 bottom): Even though the market is sitting at an all time high (as of this writing in September of 2014) and even though most people have assumed that the new bull market has started, in relative terms the market hasn’t appreciated very much since its top in 2000. The Nasdaq is still down. Plus, with the final down leg of this bear market being ahead of us (based on my mathematical and timing work), a BEAR market of 2000-2017 should complete itself in a negative territory or below its 2000 top.

It is important to note that the small variation (of +/- 1 year) in duration of these cycles is caused by smaller or larger cycles arriving at the same time.  Please note, the stock market is an incredibly complex entity that requires much further explanation. If you would be interested in learning how the stock market works behind the scenes I would highly recommend my other book Timed Value for your consideration.

To Be Continued Tomorrow…….

Z31

Cyclical Composition Of The Stock Market Google