Weekly Update & Summary: May 31st, 2014
A strong up week with the Dow Jones up 111 points (+0.67%) and the Nasdaq up 57 points (+1.36%). While the Dow remained within its tight trading range, the Nasdaq continued to display strong divergence on low volume. Short covering in “High Flyers” continues to be the most likely culprit.
All markets left a large downside gap on May 27th. That is in addition to the two large downside gaps on May 21st/23rd and another two large downside 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:
Stock Market Breadth Continues To Deteriorate
As we continue our look at how out of touch with reality the stock market is, it is time to look at deteriorating market internals. Even though the indices are up and hitting all time highs very few stocks are following.
For instance, for the S&P on a monthly daily average only 26 companies are making 52-week highs. That number was as high as 200 just a little over a year ago. Or the market went from 1 out of about 2.5 stocks making new highs to 1 in 20.
In other words, fewer stocks making all time highs while major indices push higher mask a huge underlying issues known as market breadth. While not a significant issue in itself, when we combine it with today’s extreme overvaluation levels, rampant speculation, too much credit, VIX getting close to an all time low and seasonal/cyclical factors……..it becomes yet another warning sign.
As such, major indices setting in new highs is nothing more than a beautiful mirage.
How Long Before Corporate America Destroys The NSA?
The sooner the better. Yesterday, China’s Government started instructing Chinese banks and other financial institutions to replace US made IMB servers with their Chinese made counterparts due to the fears of spying. IBM Faces Further Trouble in China. Rightfully so….
How long before other countries and businesses follow? Not very long. No one wants to be spied on and that is exactly what you are getting when you buy any sort of technology from the US today. Courtesy of the Obama Administration and the NSA.
Basically, it won’t be long before American corporation will see billions in revenue vanish into thin air. It’s already happening. I truly hope that the backlash against the US Government from these corporate interest is so strong that it utterly guts or destroys the NSA. While that might be wishful thinking on my part, this is the only was the NSA monster can be destroyed at this juncture as most American continue to be more interested in who wins the American Idol as opposed to their freedoms or privacy.
Are Bond Vigilantes Buying Bonds?
As yields continue to decline and as the yield curve continues to compress, BusinessWeek asks “Where Are The Bond Vigilantes“
In fact, Bloomberg News reports, there is “deepening concern among bond investors that tepid wage growth and a lack of inflation will persist for years to come.” The story quotes Margaret Kerins, the Chicago-based head of fixed-income strategy at Bank of Montreal: “Potential growth is a huge determinant of that long-term rate and most people are buying into the idea of lower potential growth.”
I think this is the most significant story no one is talking about. While most people believe yields are heading lower due to the lack of inflation, slower growth or simply because the bond market has gone crazy, I do not share in their optimism.
Here is why the yields are going down and the yield curve is compressing.
- The bond market is starting to see a severe recession and a bear market within the US Economy. Our mathematical and timing work confirms the same. Showing a significant recession and a bear market between 2014-2017.
- Typically, 30-year bear markets in yield do not end in a V shape form. When such long moves complete they often set a secondary bottom (at least). This fits well within our overall economic forecast as we anticipate yields to set a secondary bottom over the next 2-3 years. In 2016 to be exact.
- There are a number of open gaps leading all the way down to 1.5-1.6% on a 10-Year Note. Again, it is highly probable yields will go there over the next 2-3 years.
When we put all of this together, it becomes evident that the US Economy and the US Stock Market are in real trouble going forward.
MACROECONOMIC ANALYSIS:
I am just as tired of this as you are, but Ukraine/Russia/USA/EU/NATO continue to be the most important issue. In fact, I continue to believe that things will escalate significantly over the next few weeks.
Over the weekend, Petro Poroshenko has won a landslide victory to become Ukraine’s next president. Knows as Ukraine’s “Chocolate King” and dubbed as a “pro-west” Entrepreneur by the Western Media, Poroshenko is anything but that.
If you take a closer look……organized crime, extortion, prostitution and arms trafficking would take up at least 70% of his resume. Yet, to the Western Media he is just another outstanding citizen the Obama Administration is keen on supporting. Unfortunately, no one becomes a billionaire in that part of the world through the same channels available in the West. After years of doing business in Russia I can attest to that.
The next two weeks become incredibly important. Poroshenko will either gain complete control in Ukraine through the use of force or an all out civil war will break out. If an all out civil war becomes a reality, it is still possible that Russia intervenes militarily to “protect” East Ukraine and ethnic Russians.
As you can imagine this situation will spark a number of economic sanctions (from both sides), political storm, war rhetoric and a million other unforeseen consequences. It is highly probable that this would be incredibly unsettling for financial markets. I can tell you one thing, most markets do not have this priced in. The upcoming week is critical.
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 16,000 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).
Weekly Stock Market Update & Forecast. May 17th, 2014. InvestWithAlex.com
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. May 31st, 2014. InvestWithAlex.com Google
