2/8/2014
Continue to maintain a LONG/HOLD position -OR- In CASH .
Weekly Summary:
Quite a volatile week. We started off with a massive drop on Monday, subsequent stabilization and a rally towards the end of the week. When it was all said and done the Dow Jones gained 95 points (+0.61%) while the Nasdaq gained 22 points (0.54%). The volatility is back and that’s a good thing. Structurally, the market did very well, leaving only one gap unfilled. That was on Thursday (around 15,500) and it is highly probable (based on my work) the market will go back to close this gap next week.
The question on everyone’s mind is…..
Is this correction over? Can we get on with the bull market?
Not so fast. As I have indicated many times on this blog already, the Dow Jones topped out on December 31st, 2013 at 16,588. My mathematical analysis and work confirm that. What we are witnessing right now is the first stage of the bear market that will take us into the 2017 bottom. Again, the structure of the upcoming bear market move will be very similar to the bear market move between January of 2000 and March of 2003.
In short, a lot of volatility, a lot of violent ups and downs and a general downtrend that will take us into the 2017 bottom. Such internal market structure will make it very difficult for all (longs, shorts and traders) to make money in this market. You only have two options.
First, you can simply go short for the duration of the move. But only after the bear market is confirmed. If that is not exciting enough, you might want to concentrate on timing bull/bear moves over the next few years to maximize your returns. BTW, that is exactly what we specialize in here. Please check out our +Subscribe section.
Thus far, our model portfolio (within our premium section) has been in cash @ 10 Year Note, helping us avoid the decline while we wait for a bear market confirmation. Otherwise, I recommend people to maintain their LONG/HOLD positions.
Remember, there is vast difference between proper or exact timing and smart money management.
Fundamental Analysis:
There has been no change in the fundamental picture. As you know, my fundamental case remains fairly straight forward and clear cut. All stocks and most other markets (credit and real estate) are substantially overvalued due to massive infusion of credit by the FED over the last few years and pure speculation. How overvalued are we?
The chart above is just another data point we can use in our analysis and comes to us via courtesy of Dshort.com. The chart essentially indicates that today’s overall market valuation is above 2007 valuation levels. Looking back, we know that valuation levels at 2007 were extreme and subsequent collapse to the tune of 60% proved that without a shadow of the doubt.
While we have already surpassed 2007 levels, the market is still below 2000 levels. Does that mean you can breathe a sigh of relief? Not in the slightest.
Here is why…..
Speculative levels of 2000 tech bubble were caused by simple speculation in the tech sector and subsequent excesses throughout the economy/markets. Today’s valuation excesses are caused by massive infusion of credit. When we take that into consideration, I would argue that today’s valuation levels (once again, driven by credit) are higher than 2000 valuation levels. When the credit is finally withdrawn or becomes ineffective, both occurring simultaneously in today’s environment, the valuations are bound to collapse.
Macroeconomic Analysis:
An interesting week. Both Ukraine and Argentina are putting capital controls into their markets, indicating an upcoming economic collapse in both countries. A number of economist came out blaming “Emerging Markets” for market instability within the US. Of course, they are once again wrong. It is the not the Emerging Markets that are causing problems throughout the world, but the US Economy and the end of the credit binge that is causing all sorts of problems. It simply being felt more prominently in a weaker emerging market economies. That will soon change.
Japan continues to try spark its economic growth through monetary intervention, currency devaluation and angering menstruating women. All idiotic moves leading to an eventual disaster. The UE bureaucrats continues to pretend that everything is fine by offering Greece further extensions in hopes that Greece will pay them back. I think it’s time for the EU to admit that it is never going to happen. In fact, they might as well usher in the unavoidable and the unthinkable. Greek default.
Technical Analysis:
While the overall technical picture continues to remain murky, the resolution should be just around the corner.
Long-Term: The trend is still up. Market action in January-February could be viewed as a simple correction in an ongoing bull market.
Short-Term: Even though the market bounced from Tuesdays lows, the short term picture remains down. Please see my timing analysis for further instructions.
Overall, we must wait for a confirmation before taking a short position.
Mathematical & Timing Analysis:
We have two possible scenarios playing out.
As mentioned in our daily updates, my mathematical timing work indicates a significant turning point on February xxxx with the initial price target of xxxx. As of right now, I believe the bounce we have experienced over the last few days is just that, a bounce. As such, I anticipate the market to roll over early in the week and continue its bear move to hit the price/time targets below.
However, in case we do get a follow through of the current rally early next week, I would have to adjust my view and call for a top (instead of a bottom) on February xxxx. If this scenario comes to fruition we might be at an important juncture of bear market confirmation. As such, the first few trading days of the upcoming week is incredibly important.
Time Targets: xxxx
Price Targets: xxxx
CONCLUSION:
If you are out of the market as we have been, stay out. If you are still fully invested consider liquidating your positions as we go through a rebound over the next few weeks. Once the rebound plays itself out and the market confirms the next bear leg down, I would recommend going short at that time.
Please Note: XXXX is available to our premium subscribers in our + Subscriber Section
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Weekly Stock Market Update. InvestWithAlex.com February 8th, 2014 Google