| Committed to Stimulate...FED Chairman Yellen |
by Dr Invest
One of my favorite analysts is Louise Yamada. She suggest that the recent slides in the economy is not over yet. She says, "Worse yet, the selling could spread to other sectors, such as aerospace and consumer discretionary stocks. "What we're concerned about it whether or not some of the other stocks that have gone straight up are starting to move sideways, either in a consolidation or in preparation for some distribution," Yamada said, referring to a bearish pattern that indicates a market top. "It's a little iffy here."
What would cause real concern is if the S&P trades below 1,750. Yamada says the weakness in stocks lines up well with broader bearish indicators, such as the fact that 2014 started with a weak January, and is a midterm election year. But it's not all bad. The one positive, of course, is that 2015, as a year ending in 5, has a very good record of being an up year," the technician said. "That's the silver lining."
Thursday's edition of "The Gartman Letter," which is circulated before the opening bell, Gartman defended his recommendation to get out of stocks. "We stand by that decision, noting that we are not bearish of stocks; we are simply neutral." Thursday's big reversal wiped out the previous days' gains entirely, playing right into Gartman's notion. On "Fast Money" on Thursday, Gartman reiterated his opinion that the downturn is just getting started. "We heard a lot about the 200-day moving average in the S&P at 1760, my bet is that we probably go down and take a look at it," he said. That represents about another 4 percent of downside for the S&P 500 relative to Thursday's close. Gartman also elaborated on how long he's planning to stay on the sidelines. "Predominately, for the public, go to cash. I think it's the right place to be for a month or two, maybe even three at the outside most," he said.
My only reason for mentioning Gartman, is that he is perma-bull. I do get a bit nervous when I hear a perma-bull suggesting a downturn. Of course, in May of 2013 was a HEAD & SHOULDERS pattern that would have indicated an impending recession. Bernake managed to stimulate at the right time to avoid that crisis. Again in September of 2013 was another HEAD & SHOULDERS pattern that was put off by more of Bernanke's promises. We have been assured by the FED and Yellen, that we are in an economic recovery, even a surge of economic health, while a reversal in trend is underway. Yellen has promised that she will step in to do whatever is necessary to continue the economic recovery, even though many on the Federal Reserve board are in disagreement with continued stimulus. The view is that continued stimulus will create new bubbles and distort even more the present economy. And they are right! Never the less, Yellen is projected to stimulate to the degree that it would even make Bernanke blush.
So where from here? Expect a volatile market, dropping as much as 10%. If you are more bearish, we could see a 25% to 40% drop. The old adage, "Go Away in May!" could start in April. Do remember that Yellen will be making every effort to derail an impending recession. Much will be dependent upon the Federal Reserve and the Equities Markets selling the general public on the "strong economy" vision. Right now, however, it is the BIG CORPORATE INVESTORS who are getting out of the market. The Private investors only represent a small percentage of the equity market, but when the corporate investors make moves, those moves represent an investment tidal wave of change affecting the whole equities market.
The big moves that you have seen in the past few days, represent a "taking of profits" from an equity market that is overbought and overvalued before a coming collapse. As for now, I remain no more committed to equities than I did in 2013. Yes, I know that 2013 provide the greatest of returns, but those returns came on the guarantee of government stimulus. That no stimulus been forth coming from the FED, what do you think equities would have done in 2013.... your'e right! Equities would have collapsed. And TODAY, what do you think would happen if Yellen said, "No more! I will not put another dime of taxpayer money into the market!" Yes, your'e right again! Equities would immediately collapse!
It is for this reason, I prefer to miss these speculative opportunities. It may not be tomorrow, next month, or next year, but the FED cannot keep the market from entering into a recessionary period. I prefer not to invested in equities when that happens.
(note: the above information is for entertainment purposes only and not to be used as investment advice.)
