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Stock Market Update, Sept 19th, 2013

Sept 19 2013 chart

 

I continue to advice to maintain a long position for the time being, but be ready to switch direction at a moments notice.  

Even though I am “Bear” anticipating the market to decline significantly over the next few years, I do have to admit the chart and other technical indicators look strong here. This is a very interesting time. Will the market go on to set a new high or will it be unable to push much higher from here? Will it pause or reverse here? 

All we can do for now is maintain our long position and wait for a confirmation that the bear market is here. Are we there yet or will March of 2014 (as I have mentioned earlier) be the actual top? The market did open a bunch of gaps at 15,300 that it will have to go down in order to close, but at least for now the short term picture looks fairly good here.  There is no need to fight that. 

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Reality Of Today’s FED Move

Bloomberg Writes: The Fed’s ‘No Taper’ Sparks a Trading Frenzy

 

S&P 500 5-minute

The Federal Reserve surprised nearly everyone today when its Open Market Committee announced at 2 p.m. that it would not taper its $85 billion in monthly bond purchases because it is concerned about weakness in the economy. The announcement led to an across-the-board rally as investors hurried to plow money into stocks and commodities.

The market reaction was instantaneous: According to data off my Bloomberg terminal, between 1:59 p.m. and 2:00 p.m., the Dow Jones Industrial Average jumped 141 points, from 15,485 to 15,626. Over the next two and a half hours, the Dow added another 50 points to close up 147 points on the day.

Read The Rest Of The Article Here 

On a more serious note, while the market and most people celebrate I see it from a different perspective. While most market participants see it as “The Fed will not taper $85 Billion per month stimulus” I see it as “The Fed CANNOT taper $85 Billion per month stimulus”. 

There is a significant difference between these two statements. You see, Ben Bernanke and the Fed understand that if they stop the QE bond purchasing program the following things will happen within a short period of time. 

  • Interest rates will shoot up. 
  • Dollar will strengthen. 
  • Deflation will finally be evident. 
  • Stock market will collapse. 
  • Real estate market and auto sales will collapse. 
  • The US Economy will tank. 

They do not want to allow that to happen for obvious reasons. However, the laws of physics cannot be bypassed. Sooner or later all of the things above will happen irregardless of what the Fed does. 

I do find it troubling that the market only went up 150 points or so. That is a fairly weak performance considering what has happened. In no uncertain terms the FED told everyone that it will keep this credit financed speculation party going for as long as possible. 

The biggest mistake I think everyone is making is the fact that they believe the FED has control of the markets. That is not even close to reality. They do not control anything. Don’t be surprised if the market reverses tomorrow and begins its next let down. 

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More Cocaine For Everyone

It was well past midnight, but everyone was still partying.  Although the booze and drugs were running low, the party was still in full swing.  The entire school was there. Real estate alphas, derivative betas, the car club and who could forget about the speculator zetas.  As sunrise approached everyone was starting to get tired. Some people were even talking about calling it a night and going home.

That was until a good lad Ben Bernanke kicked in the door and yelled  “I got it, let’s party”.  As he opened his duffle bag and emptied the contents on the couch, everyone in the house went wild. There it was. Two kilos of pure Columbian coke. More than enough for everyone.  The party was back on.

As the clock hit 9 am, the house was surprisingly silent.  When the campus police opened the door there were bodies everywhere. Some were laying there motionless and not breathing, some were simply passed out, some were twitching while others sat silently staring at the wall.  As the medical examiner took the bodies out, it was not till much later that the cause of the tragedy was revealed.  For most, there was simply too much coke that night. 

If you are wondering, that is exactly what happened in the stock market today. 

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How The Stock Market Really Works (PART 1)

3d tunnel - invest with alex

 

People have a lot of misconceptions about how the stock market works. The primary two are…

  1. That the stock market is random and
  2. News, events, policy, governments, etc…. drive the stock market.

After in depth study of the market over the last 15 years, nothing could be further from the truth. The market is NOT random and news/events, etc… have no impact on the overall trajectory of the stock market. As a matter of fact, it is the market that drives events and not the other way around.

So, how does the market work? The stock market is a lot more complicated than most people believe. You see, most people view it as a two dimensional (2-D) representation of time moving up and down over time. It is a very simplistic view to take, but that’s what everyone does.  

However, the market is A LOT more complicated than that. Before I tell you what I mean, allow me to bring your attention to something else for a second. I want you to realize that Mother Nature does not produce 2-D systems. Nothing in nature is 2-D while everything in nature is at least 3 Dimensional (3-D). Look around you. Everything in the physical realm, from planets to atoms exists in 3-D.

What does this have to do with the stock market? Everything.

The stock market is NOT a 2-D environment. It exists in at least a 3 Dimensional environment. It is our human mind that cannot comprehend that and as such forces the stock market chart into the 2-D (Time/Price) chart.

Let me give you an example. Take a look at the 3-D tunnel above. Imagine a snake moving away from you by hugging the walls of the tunnel. Well, that is a 3-D movement. However, if you take this same tunnel and turn it so you face it head on, the ONLY movement you will see is UP and DOWN 2-D movements within the tunnel.

That is exactly what we see on the stock market chart. Yet, the market is a lot more complicated. Not only does it have up and down movements, it moves sideways (in volume) as well.  When one understand that, one can take financial/market analysis to the next level and predict the timing of the stock market moves mathematically with great accuracy.

This concludes Part 1 of How The Stock Market Really Works. 

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Stock Market Update (Sept 16th, 2013)

daily chart Sept 15, 2013

 

The stock market is behaving just as anticipated so far.  The Dow is getting into a very exciting territory. As I have mentioned in the past, we are close to the moment of truth. We are either going to get a confirmation that the bear market rally that started in 2009 is now over or go on to set the next top.

My work shows that there is an 80% probability that the bear leg down has started with the top set in August of 2013. However, there is a 20% chance that the top will complete in March of 2014 instead. Without going into too much details in regards to the timing involved, what will happen over the next few weeks is incredibly important.

Even though the futures are up close to 1% due to Summers drop out, I believe the market will give up gains and this week will be somewhat uneventful. The market is moving up to close the gaps in 15500-15400 range as I previously discussed.  Thereafter, it should pause for a little to digest the gains. At that point we should either see divergences indicating the next leg down OR continuation of the run.

Once again, not much to do right now, but wait. Maintain your long position (if you have one) and wait for various confirmations that the bull run is over to kick in. I will keep you posted.  

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GOLD

investwithalex gold

 

People keep asking me about Gold and other precious metals.

Short Answer:  I have no idea. I am too stupid to understand the metals in order to predict them.

Longer Answer: I have studied Gold for a while now and have heard every bullish and bearing argument for or against it. I understand inflation, deflation, safety and currency issues associated with precious metals. However,  I cannot put a complete analysis together in order to give you a legitimate answer.

Basically, precious metals are too complicated.  Some people see it as money, others as inflation/deflation hedge, then you have fundamental/industrial demands for the metals, then there are national reserves, etc….

All of those points are easy enough individually, but when you put them all together you get a lot of interference and noise without any clear direction. Perhaps it is easier for other people to understand, but it simply does not make sense for me.

I cannot see any fundamental reasons for owning gold.  Is it a hedge against inflation/deflation?  Not really. I would rather hold US Dollars in a deflationary environment and a portfolio of inflation protected stocks in an inflationary environment. Plus, the long term gold chart doesn’t look good from a technical stand point. It is either showing a sideways movement or a breakdown.

investwithalex gold chart

Can Gold and other precious metals appreciate significantly here? Sure, but they can also break down. Once again, I have no idea, nor do I find myself qualified to issue an appropriate opinion. 

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Stock Market Update, Sept 10th 2013

Sept 10 2013 chart

The Dow is recovering nicely here, just as anticipated. As I have mentioned before the market was oversold and due for a bounce. I believe this bounce will take the rest of September to complete. 

What is interesting is that the market left a bunch of open holes (gap downs) on the way down around 15,500-15,400 range. After studying the market for many years, I have noticed something. The market doesn’t like these gaps. One way or another the market comes back to close the gap. Even if it takes years.

Other technical and timing works indicate that the market is likely to get into this 15,500 range by the end of September before reversing and heading down. As of right now I would still be in a waiting pattern, looking for various confirmation. There is no need to rush here. Stay patient. 

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Can’t Find A Good Job? You Are Not Alone

Business Week Writes: Not Looking for Work: Labor-Force Participation Hits 35-Year Low

 

The unemployment rate fell in August but for the worst of reasons: Many Americans stopped looking for work so they weren’t counted among the unemployed. What’s harder to tell is why they stopped looking. The political right chalks it up to laziness and government coddling, while the political left says people are giving up looking because a dysfunctional economy isn’t producing enough jobs.

The Bureau of Labor Statistics said the August unemployment rate was 7.3 percent, down a tick from 7.4 percent in July. The worrisome part is why the rate fell. The size of the workforce declined by about 300,000 and the participation rate fell to 63.2 percent from 63.4 percent—the lowest since August 1978. The participation rate is the number of people either working or actively searching for work as a share of the working-age population. It rose steadily over the years as more women entered the workforce before falling sharply in the 2007-09 recession, and it hasn’t recovered since.

Also disappointing was the payroll report. While the 169,000 added to employers’ payrolls in August wasn’t far below the 180,000 median prediction of economists surveyed by Bloomberg, there was a downward revision of 74,000 jobs to the previous two months’ reports. The government said June payrolls grew by only 172,000, rather than 188,000; July’s grew by only 102,000, instead of 162,000. In other words, while employment did grow in August, it was from a substantially lower starting point than previously believed.

Listen, this is fairly easy. The unemployment numbers  that are reported by the FED (with all of their adjustments) are highly diluted at best or as some would argue, downright bogus. The truth of course is somewhere in the middle.

Millions of Americans have given up looking for good paying jobs. As such, they have technically left labor participation pool and are not being counted as “unemployed looking for work”.  I do not think these people sitting at home being happily unemployed.  Not by a long shot. They have simply tried (some for many years) to find good paying jobs but were unable to do so. Why?

As I have mentioned before, I believe the US Economy never technically left recession. The market was simply flooded with cheap credit in order to stabilize things and to give perception that things are getting better. However, with interest rates now moving higher and with stimulus velocity now pretty much being exhausted, I believe recession and unemployment are about to show their ugly head again.

investwithalex unemployment

So, what is the true unemployment number in the US? Hard to say, but if you count all of the people who left the labor pool due to their inability to find full time work as well as those who are considered “part time workers who would like a full time job but are unable to find one” I would put the number at around 15-20% unemployment.  

A grim picture indeed. A picture that might just get a lot worse as the US slides back into a recessionary environment in 2013-2014. If you do have a good job, treasure it. “Now”, might be a good time to start practicing your ass kissing skills. 

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Short Term Dow Forecast

BusinessWeek Writes: Anxieties of September Give Markets Reason to Tremble

 September will be September. Forget the fact that the Standard & Poor’s 500-stock index is up 15 percent this year—not far off its record—or that the U.S. market has not had a routine 10 percent correction for more than two years. Never mind howMicrosoft (MSFT) and Verizon (VZ) are throwing billions at deal making. September remains that only month of the year where the Dow Jones industrial average has averaged a decline over the past 20, 50, and 100 years.

Throw in a down and volatile August, and the new month starts anxiously, true to its character. Ed Yardeni of Yardeni Research notes that Investors Intelligence reported a big drop in the percentage of bullish advisers over the past six weeks. The fraction surveyed who saw a correction rose from 28 percent to 38 percent over the period.

“Fear is back on the front page,” says Joshua Scheinker, an adviser with Scheinker Investment Partners of Janney Montgomery Scott. “My clients are so concerned, almost looking for another crisis, whether Syria, the debt ceiling, or interest rates.”

Read The Rest Of The Article Here

 

daily chart Sept 5, 2013

From a short-term purely technical perspective the market looks pretty good here. The market is somewhat oversold.  I am looking for a good rebound into the 15,300 territory on the Dow by the end of September before the resumption of the bear market.

It is not the September, but October and November that are seasonally horrific for stocks. There is a cyclical reason for that and I might talk about in the future. 

Long story short. Expect a rebound here to around 15,300 by the end of September, then a reversal and continuation of the bear market. However, I would be careful here and keep my finger on the trigger in case the market breaks below 14,800.

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WARNING!!! Is The Philippine Economy/Stock Market About To Collapse?

Philippine Inquirer Writes: PH “different” from troubled Asean peers, say report

 

The Philippines, Southeast Asia’s fastest-growing economy, can differentiate itself from its regional peers that are grappling with slowing growth and deteriorating external balance sheets, based on a common theme cited by international researchers in the past few days.

Although election spending was a factor behind the better-than-expected 7.5-percent gross domestic product (GDP) growth of the Philippines for the second quarter, a pace matched only by China, some of the reports cited some downside risks

“The local economy’s resilience in the face of external turbulence reinforces our view that the Philippines is somewhat differentiated from its peers not only by having a structural current-account surplus but also by having local growth drivers, mainly public spending and private investments, to lean on. The latter may be traced to local economic authorities’ ability to pursue accommodative policies given a benign inflation outlook and manageable public debt,” New York-based think tank Global Source said in an Aug. 30 commentary written by Filipino economists Romeo Bernardo and Marie-Christine Tang.

In a separate research, Credit Suisse said: “We think the Philippines offers the best macroeconomic prospects out of the Asean-4 economies,” referring to the four emerging markets of Southeast Asia that also included Thailand, Indonesia and Malaysia.

Read the rest of the article here

As of right now the Philippine economy is in a very dangerous situation. I say dangerous by simply relying on the Philippine Stock Exchange (PSEi) stock chart.  The chart looks horrific. It looks as if it is about to break down to the downside ………BIG TIME. 

From a purely technical perspective, if it breaks down below 5,700 level, the Philippine economy and the Philippine stock market is in huge trouble. There is no support of any kind until it reaches down to about 4,000 level.  From my experience,  I would put a chance of a breakdown here and a subsequent significant decline at about 80%.

philippines-stock-market

 Better chart here: http://www.bloomberg.com/quote/PCOMP:IND

What does all of this technical mambo jumbo means for average people. The stock market is a leading indicator. If the Philippine stock market breaks down as I anticipate above,  the Philippine economy will follow and slow down significantly.

The fundamental picture supports this thesis as well.  Due to an upcoming economic slowdown in the US, rising interest rates and a recent (substantial) move in the Philippine Peso, I would anticipate the Philippine Stock Market and the Philippine economy to break to the downside soon. Unfortunately, that would lead to either a significant slow down or even a recession in the country. 

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