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Just A Correction Or Did A Bear Market Already Start?

Daily Chart August 14 2015

8/14/2015 – A positive day with the Dow Jones up 69 points (0.40%) and the Nasdaq up 15 points (0.29%) 

The primary line of thinking on “The Street” is as follows. We are undergoing a regular correction and as soon as it’s over, the stock market will push to new highs. For instance, This could be correction stocks are waiting for. AKA, buy the dip.

My question is, what if this “mild correction” turns into a real bear market? What if this 5-10% correction turns into a 20-30-40% decline over the next two years?

Don’t forget, the 2000 and 2007 bear markets started with small corrections as well.

Last week I shared the following cyclical breakdown with you Shocking: The Real Reason Behind Stock Market’s Decline & What’s Next

This week, let’s review our primary bearish driver. Excessive overvaluation.

One of the primary bullish arguments is a claim that the stock market is not expensive by any historical measure. I have argued against this notion by presenting a number of metrics over the last 6-9 months. The article below summarizes most of them in a nice fashion and with charts. It is definitely worth 5 minutes of your time.

Forbes: Disaster Is Inevitable When The Two Decade-Old Stock Bubble Bursts

The case, charts and numbers presented in the article above are right on the money. Or, you can just look at the Shiller’s Adjusted S&P ratio chart below. We have seen higher valuations only at 1929 and 2000 tops.

PE Ratio

However, here is one crucial factor that most analyst, even the bearish ones, miss. ALL of today’s valuation metrics would be even more out of sync with reality if analysts considered how much “extra juice” zero interest rates, QE and share buybacks infused into the corporate earnings over the last 5-6 years.

What is that number? 

Given current distortions, no one knows and the real number in question cannot be calculated at this time. It is arbitrary at best, but I would estimate that the drivers above added somewhere between 50-100% to today’s corporate earnings.

Here is what that means. If we are to take out QE stimulus, zero interest rates and share buybacks, today’s P/E ratio would not be around 27.44 (which is outrageously expensive), it would be somewhere in the neighborhood of 35-50. Making today’s stock market not only overvalued, but are you “freaking kidding me” overvalued. That is to say, you don’t have to be a genius to figure out how this ends.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. 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 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. 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. August 14th, 2015  InvestWithAlex.com

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

Just A Correction Or Did A Bear Market Already Start?  Google

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COT Reports & Weekly Market Calendar – August 14th, 2015

COT Reports: If you are not familiar, the Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions. In other words, it gives us a preview of what commercial interests are buying or selling. As the theory goes, we want to be on the same side of the trade as the big guys.

While not a good timing tool, currencies, commodities and the stock market (to a lesser extent) tend to move in the direction of the bets made by the commercial players. Not always, but often enough.

Latest data, as of August 11th, 2015

Currencies: 

  • USD:  4K Long Vs. 84K Short – Significant short interest remains. No major changes.
  • Canadian Dollar: 92K Long Vs. 3K Short – Slight net increase in commercials net long position.
  • British Pound: 47K Long Vs. 28K Short – Slight increase in net long interest, but remains neutral.
  • Japanese Yen: 152K Long Vs. 3K Short – Substantial increase in net long position. This is quite a large long position in Yen.
  • Euro: 127K Long Vs. 22K Short – Significant long position remains. No changes.
  • Australian Dollar: 133K Long Vs. 1K Short- Significant long position remains.

Conclusion: Based on the information above, commercial interests expect the US Dollar to decline while Canadian Dollar, Euro, Yen and Australian Dollar rally. British pound is neutral. 

Markets/Commodities/Volatility: 

  • E-Mini S&P 500: 297K Long Vs. 556K Short – Few changes. A substantial short position remains.
  • VIX: 85K Long Vs. 7K Short – No changes. A substantial long position suggests market turbulence ahead.
  • Gold: 83K Long Vs. 61K Short – Slight increase in net long exposure. Still neutral.

Conclusion: Based on the information above, commercial interests expect the stock market to decline as volatility surges higher. Gold is likely to remain within its trading range. 

Next Week’s Market Calendar: 

  • Wednesday – Consumer Price Index
  • Wednesday – FOMC Minutes.
  • Thursday/Friday – Jackson Hole Symposium

Z30

COT Reports & Weekly Market Calendar – August 14th, 2015 Google

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Is Yuan Devaluation Meaningless?

Marc Faber believes that Yuan’s devaluation is meaningless. Yes and no. It doesn’t matter in terms of what it will actually accomplish, but it does matter on two fronts. First, it is an indicator that the Chinese and global economy is not growing. Second, it gives everyone, including the FED, an excuse to continue on with further devaluation and easing. And that will play out in our markets over the next few years.

This video is definitely worth 5 minutes of your time.Quite a good overview of the US Market as well.

Z31

Is Yuan Devaluation Meaningless?  Google

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Why The FED Will Not Raise Interest Rates

Daily Chart August 13 2015

8/13/2015 – A mixed day with the Dow Jones up 6 points (+0.04%) and the Nasdaq down 11 points (-0.21%)

I am 75% confident that the FED will not raise interest rates at all and 100% confident that they will not raise it in any meaningful way. What is meaningful? Even 8 separate hikes at 25 bps each would be laughable here.  And while anything above that will matter, I am extremely confident that we will not even get close to that over the next 2-5 years.

Here is why…….

  • Earlier this week China has launched an official currency war by devaluing the Yuan 3 times in a row (thus far). Japan is trying to do the same and the EU is threatening further easing and/or QE. In this ocean of devaluation, the US cannot afford to have a strong currency.
  • Plus, the US Economy is rolling over into a recession. Some of today’s official numbers are starting to reflect that.
  • We are on the verge of a massive down leg in our equity markets. At least based on my mathematical and timing work.
  • Commodities have collapsed.
  • Deflationary forces are reappearing throughout the economy.
  • Etc….

As I have mentioned before, this is the worst case scenario for the FED. They are already TOO LATE. Now they are stuck in a situation where our economy and capital markets collapse while they are rendered powerless. As soon as other investors realize that……well…….watch out below.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. 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 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. 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. August 13th, 2015  InvestWithAlex.com

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

Why The FED Will Not Raise Interest Rates  Google

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Alibaba & China: Heading In The Same Direction.

Alibaba BABA InvestWithAlex

Alibaba (BABA) is down 38% in 9 months. Something that was predicted on this blog on numerous occasions. For instance…..

Is Alibaba (BABA) Getting Desperate?

Alibaba (BABA): More Money Than Brains?

Alibaba (BABA) Time To Buy Or Go Short?

Another Idiotic Advice From Jim Cramer

You get the idea. Alibaba is a giant piece of overpriced crap. That is not to say that we won’t or can’t get a bounce here. That is to say that Alibaba is just starting its long-term descend.  Here is why.

  • Alibaba is excessively overpriced. Click on the links above or search BABA on my blog. I have explained it previously.
  • China is accelerating its collapse. As we saw with Yuan devaluation and their stock market collapse over the last few days/weeks. Don’t forget, most of Alibaba’s business comes from China.
  • When bear markets hit, something we anticipate soon, overpriced and overhyped stocks like Alibaba tend to lose 50-90% of their value.

That is to say, if you have the guts to hold though the volatility, Alibaba is a great short. Even at today’s levels.

z32

Alibaba & China: Heading In The Same Direction.  Google

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Star Wars: The Next Frontier In Human Stupidity

Space-warship-investwithalex

I am talking about the real thing, not the movie. China, Russia and the U.S. are developing and testing controversial new capabilities to wage war in space.

War in Space May Be Closer Than Ever

“Offensive space control” is a clear reference to weapons. “Active defense” is much more nebulous, and refers to undefined offensive countermeasures that could be taken against an attacker, further widening the routes by which space might soon become weaponized. If an imminent threat is perceived, a satellite or its operators might preemptively attack via dazzling lasers, jamming microwaves, kinetic bombardment or any other number of possible methods.

Given human species track record, I would imagine the above becomes just a matter of time.

“We are in the process of messing up space, and most people don’t realize it because we can’t see it the way we can see fish kills, algal blooms, or acid rain,” he says. “To avoid trashing Earth orbit, we need a sense of urgency that currently no one has. Maybe we’ll get it when we can’t get our satellite television and our telecommunications, our global weather reports and hurricane predictions. Maybe when we get knocked back to the 1950s, we’ll get it. But by then it will be too late.”

Another worthless data point to worry about? Yes and no. Should a serious conflict between Russia/China and the US/NATO develop over the next 15-20 years, something I anticipated, expect most satellites to become targets. As 60 Minutes episode last year showed, China already has the capability to shoot down our satellites (I am sure Russia does as well).  Even the deep space ones.

As for me, I continue to be amazed with the fact that the human race is working overtime on trying to destroy itself. The problem is, we now have the technology and the capability to do just that.

Z30

Star Wars: The Next Frontier In Human Stupidity Google

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Are Global Woes Finally Catching Up To The US Markets?

Daily Chart August 12 2015

8/12/2015 – A positive day with the Dow Jones up 0 points (0.00%) and the Nasdaq up 8 points (0.15%) 

If you haven’t noticed, China’s dual Yuan devaluation has sent the Dow down 500 points over the last two days. Although half of this down move has been retraced thus far. It is important to understand that China is doing this our to necessity. And it’s not only China. We are facing a similar setup worldwide. Consider the following.

  • iShares MSCI Emerging Markets (EEM) which is down 19 percent from last summer’s highs.
  • DB Commodities Tracking Index Fund (DBC), which is down 43 percent from last summer’s highs
  • Factory orders here have expanded on a monthly basis only twice in the last 11 months. Excluding transportation, factory orders collapsed at a 7.5 percent annual rate in July, the worst since the maw of recession in 2009.
  • In Japan, despite a near 40 percent drop in the yen, industrial production is growing at just a 2 percent annual rate.
  • In China, the PMI manufacturing activity index dropped to 47.8 in July, down from 49.4 in June and below the neutral 50.0 mark for the fifth month in a row. Chinese factories are suffering their deepest contraction in activity since July 2013.
  • In China, the PMI manufacturing activity index dropped to 47.8 in July, down from 49.4 in June and below the neutral 50.0 mark for the fifth month in a row. Chinese factories are suffering their deepest contraction in activity since July 2013.
  • Etc….

Can the US markets recover and/or avoid worldwide/commodity collapse? 

I don’t see how. What you have to understand is this. Most of the recovery off of 2009 bottom has been driven by zero interest rates, speculation, QE and stimulus. And now that it’s gone, nothing can prevent further collapse. China might be the first to pull the trigger in this currency war, but it is just a matter of time now before the FED cancels interest rate hikes. Not a good sign.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. 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 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. 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. August 12th, 2015  InvestWithAlex.com

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

Are Global Woes Finally Catching Up To The US Markets? Google