Weekly Update & Summary: June 21st, 2014

A positive week with the Dow Jones up 171 points (+1.02%) and the Nasdaq up 57 points (+1.33%). As of Friday, the large upside gap that was left behind on June 11th @16,945 was successfully closed. With the market setting daily highs, no other upside gaps remain at this time.

However, we continue to have a number of large down gaps, the one on May 27th, two large gaps on May 21st/23rd and two large gaps on April 14th/16th. Indicating an eventual correction. Further, there are a number of smaller gaps left leading all the way down to February 5th low.  We continue to believe that the Dow will close such gaps when the next bear leg develops at below mentioned time frames (please see mathematical analysis & timing section below).

WEEKLY REVIEW:

American Total Debt Level Reaches Unprecedented Benchmark

American total debt level (government, business, mortgage, consumer) has hit an unprecedented level of 60 Trillion dollars. Well, $59.4 Trillion to be exact. A number so staggering that is truly impossible to comprehend. Yet, let’s give it a try. Here is what you can buy for 60 Trillion….

• 15 Trillion Big Macs at McDonald’s
• 60 Million McMansions at $1 Million each.
• 240,000 Boeing’s 777
• Or you would have to spend about $2 Million per every single minute of your life if you are to live for 70 years.

It would only be appropriate if the stock market celebrates this amazing achievement with another stock market rally. On a more serious note, there is absolutely no way that the US Government or the US Citizens can repay this amount of debt. Given our current economic environment, it would have to be inflated away. That is precisely what my mathematical and timing work shows.

Even though there are signs of inflation, technically we are still in a deflationary environment. With more debt defaults and debt liquidation coming during the bear market of 2014-2017, deflation will continue to rule. Yet, come 2017 we should see ever increasing pressure on the inflationary front. Slow at first and accelerating into double digit inflation towards the 2030′s. That in itself will create a huge mess, but it’s too early to talk about that at this stage.

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Too Much Cash On The Sidelines. Are Markets About To Stage A Massive Rally?

Tech Bubble top, Housing & Credit Bubble top……and now a “I Am A Stupid Idiot Who Never Learns Bubble” top?  Not according David Seaburg head of equity sales at Cowen and Company. Based on his research, there is a massive amount of cash on the sideline and the markets are about to surge higher.

“This could set up for a year-end chase rally when we start to see a lot of this money get put to work. Come September, we could see a massive move up. You are going to see the market grind up and people will be chasing performance until year end…. Everybody is super confused. When we start to see more data come in positive, you will start to see that cash be put back into the market.”

I agree with him on one thing, everyone is super confused. Yet, I don’t think it points to massive rally by the end of the year. On the contrary. Money managers are sitting in cash because everything has been driven into a bubble territory. I am a perfect example that. There is absolutely nothing to buy. As a fundamental value investor I am unable to find anything of value. ZERO. Not a single company is “undervalued”. If that doesn’t scare you, I am not sure what will.

Further, my advanced mathematical and timing work shows a severe bear market between 2014-2017. 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 exactly when this bear market will start in 2014 (to the day), please CLICK HERE. 

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China’s Massive Debt Experiment Continues Unabated.

China’s massive credit bubble continues to expand China Inc borrows $14 trillion, overtakes US as top corporate borrower-S&P.  Here are just a few bits that should scare the bejeezus out of you.

• Chinese corporate borrowers owed $14.2 trillion at the end of 2013 Vs $13.1 trillion owed by U.S. corporations.
• This means that as much as 10 percent of global corporate debt is exposed to the risk of a contraction in China’s informal banking sector.
• Cash flows and leverage at Chinese corporations are the worst among global peers, having deteriorated from being the best in 2009.

As I have mentioned in the past, most of China’s economic growth over the last 5-years has been financed by a massive credit expansion. The likes of which we have never seen before. The result? 

• $21 Trillion Debt Mountain. Roughly the same size as the entire US Banking Sector. It took the US 220 years to get to that number, it took China just 5 years of explosive credit growth.
• $6 Trillion In Shadow Banking. Actually, no one knows how large this number is. I have read good data/reports putting this number at $10-15 Trillion range.
• Empty cities, shopping centers, massive speculative bubble in real estate, built out infrastructure, rising cost of labor and export driven economy.

How much longer can this go on? Well, that’s a Trillion dollar question…..or a $40 Trillion dollar question. Either way, one thing is for sure, this will not end well nor will it end in an orderly fashion.

GEOPOLITICAL & MACROECONOMIC ANALYSIS:  

With the week ending where it began, most of the issues discussed in last week’s update remain relevant. Below is a re-print of last week’s update.

This week has not been a good week from a geopolitical sense. With so many conflicts happening simultaneously it certainly feels as if the world is going to hell in a hand basket.   Let’s take a quick look at the three  of the most important ones and see if they can impact our financial markets.

• Ukraine/Russia/NATO/USA/EU: As I have mentioned in last week’s update this situation continues to die off. While there is an all out conflict and a mini civil war,  this issue might be on  a verge of completion. With that said and as with any conflict, a quick re-escalation is always a possibility. Unfortunately, the US relationship with Russia will continue to deteriorate for as long as this administration remains in place. If the conflict dies off, there shouldn’t be any impact on our financial markets.
• China/USA/NATO/Philippines/Vietnam/Taiwan/Japan:  China has already said, in no uncertain terms and a number of times, that it wants the US military presence out of Asia.  China will continue to flex its military muscles to try and control the entire region.  While there have been a number of incidents, thus far they have not caused any major problems. Yet, make no mistake, the pressure is building and this powder keg will explode. Sooner or later. No impact on our financial markets as of today.
• Iraq/Syria/USA: In a stunning turn of events, various factions of Islamic militants, crazies, al-queda, etc….. have nearly completed their takeover of Iraq in a matter of day.   Given the circumstances and reports coming out of the Iraq, it is just a matter of days before Baghdad falls and militants gain control of the entire country. No amount of “strategic bombing” by the US will prevent this. Only an invasion can and no one is willing to do that.

This is the most important issue now….. on two fronts. First, if successful, these Islamic militants will be able to use Iraq and parts of Syria as lawless land where anything and everything goes. Further destabilizing the region and having the ability to train as many terrorists as their little hearts desires. This will come back to haunt us. Second, OIL & OIL money.  They might end up as the wealthiest terrorist organization ever created, destabilizing the oil markets in the process.  We must watch this situation very carefully and anticipate that it WILL have an adverse impact on our financial markets.

TECHNICAL ANALYSIS FOR THE DOW JONES:  

Long-Term: The trend is still up. Market action in January-February could be viewed as a simple correction in an ongoing bull market. Same applies to the market action over the last few months. Yet, that in itself can be misleading as per our timing analysis discussion below.

Intermediary-Term: Since February 5th, intermediary term picture shifted from negative to positive. Giving us a technical indication that both the intermediary term and the long term trends are up. Yet, that in itself can be misleading as per our timing analysis discussion below.

Short-Term: Short-term trend remains positive for the time being. The Dow would have to break below 16,600 for the short-term trend to shift from positive to negative.

Again, even though all 3 trends are bullish for the time being, that might be misleading. Please read our Mathematical and Timing Analysis to see what will transpire over the next few weeks.    

MATHEMATICAL & TIMING ANALYSIS:  

It’s going to be a long one.

First, a re-cap. Particularly for our new subscribers. Over the last few months we have maintained that the DOW will….. 

(*** Please Note: This time around about 90% of the information contained within this section has been deliberately removed as it contain too much technical information. Particularly, exact dates and prices of the upcoming turning points. As well as trading forecasts associated with them. I deem such information to be too valuable to be released onto the general public.  As such, this information is only available to my premium subscribers. If you are a premium subscriber please Click Here to log in. If  you would be interested in becoming a subscriber and gaining access to the most accurate forecasting service available anywhere, a forecasting service that gives you exact turning points in both price and time, please Click Here to learn more.Don’t forget, we have a risk free 14-day trial).

In conclusion, xxxx

Longer-Term Overview:

The next turning point is located at……

Date: XXXX 
Price: XXXX

TRADING: 

I am now fully committed to the XXXX side of the market with 11 individual positions taken at the prices outlined below. A lot of them have done incredibly well thus far and I hope you were able to benefit as well. I will be updating you of any changes or anticipated changes before they take place.

Remember, you should have an exact strategy and entry/exit points based on the forecast above. 

The list below is for your reference point. It entails my investment strategy for my own investment purposes. While you are free to follow me, please do so at your own risk. Do not take this as a trading advice. Please note, all of the positions below have been triggered.    

Stock	Entry Point ($)	Action Taken	Stop Loss @
xxxx	xxxx	xxxx	91
xxxx	xxxx	xxxx	1250
xxxx	110	xxxx	121-123
xxxx	74	xxxx	80
xxxx	xxxx	xxxx	260
xxxx	xxxx	xxxx	460
xxxx	35	xxxx	39
xxxx	65	xxxx	70
xxxx	120	xxxx	120-130
xxxx	100	xxxx	108-112
xxxx	112	xxxx	120

Otherwise, I suggest the following positioning over the next few days/weeks to minimize the risk while positioning yourself for a forecasted market action. (This is continuation of our previous positioning).

If You Are A Trader:  XXXX

If No Position:  XXXX

If Long: XXXX

If Short:  XXXX

CONCLUSION: 

An incredibly important week is coming up. We are now looking for our forecasts above to be confirmed over the next few trading days/weeks. I have also described what to anticipate over the next few months and exactly what you should do now. With increased volatility, multiple interference patterns and an incredibly important long-term turning points coming up over the next few months we must be very careful and risk averse here.  Those anticipating the moves and those who can time them properly will be rewarded appropriately.Weekly Stock Market Update & Forecast. May 31st, 2014. InvestWithAlex.com

Please Note: XXXX is available to our premium subscribers in our + Subscriber Section. It’s FREE to start. 

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Weekly Stock Market Update & Forecast. June 21st, 2014. InvestWithAlex.com Google