Today's Market
by Dr Invest

I want to make some money! So does everyone else. I'm sitting on my pile of cash and wondering, when can I put this money to work? Most important, where can I put this money to work?

Two blogs before this one, I predicted that the DOW could break through 12,000 and continue to climb through Christmas or that it could climb to 12,000 and begin a downward trend.  It is still to early to know whether the trend is up or down, but today the DOW fell 207 points. Yesterday, I mentioned a Sucker Bull Market. To confirm whether the rally is real or not, requires us to look at a 10, 20, or 50 day moving average that is compared along with a 200 day moving average. The 10 day moving average, compared along with a 200 day moving average is LESS SAFE (more volatile) of a purchase than a 20 or 50 day moving average compared along with a 200 day moving average.

Building a Chart Step by Step

Go to www.stockcharts.com selecting ENTER A STOCK SYMBOL. In the blank, enter DJIA and select GO. You will see the SHARP CHART, but below the chart are several large boxes with a grey background. Select the second box titled: OVERLAYS and then look for the SIMPLE MOVING AVERAGE, changing 50 to 10. Select UPDATE. Now go to look at your chart.

Now you know how to make your own chart and how to identify both the 200 day moving average and the 10 day moving average that you set for the chart. A 20 day moving average, compared to the 200 day moving average would be less risky and a 30 day moving average, compared to the 200 day moving average would be even less risky than the 20 day moving average.

What is important for you on this chart, as an amateur investor, is the CIRCLE. The 10 day moving average has not risen above the 200 day moving average. I even tried a 5 day moving average compared to the 200 day moving average, and still the 10 day moving average did not rise above the 200 day moving average.

This is why we call this a SUCKER BULL MARKET. It looks like a rally because of nearly thirty-days of an up-trend in the market; but if you drew a horizontal line across the recent highs at 11,700, you would see that the break-out has risen only 11,900 falling by the end of today to 11,706. This is hardly a rally and a place where many investors can lose money with only the day traders walking away with their cash.

WAIT! Yes, I said, WAIT! Now is not the time to buy stocks. Yes, the 10 day moving average could move above the 200 day moving average, but understand to move to early in trading this market will at best be speculation and at worst, GAMBLING.

The Euro Union Rescue

I was horrified to hear that the market was rising solely on the promise of a Euro Bail-out. The most depressing display of math-illiteracy by investors last week was the excitement over a report suggesting that France and Germany had agreed to a 2 trillion euro bailout package for Europe, which triggered a "risk-on" tone for the rest of the week, even after the report was retracted as inaccurate. Moreover, Europe has just gone through a tooth-pulling process just to approve 440 billion euros for the European Financial Stability Fund (EFSF) from all EU members combined.

So barring new dedicated funds from Germany and France, which had zero chance of being forthcoming, the only way you could morph 440 billion euros into 2 trillion euros was for each of those 2 trillion euros to really be only 22 euro cents of protection. In other words, you could only say that the EFSF would "protect" 2 trillion euros in European debt by limiting the protection to about 20% of face value, without using any of the funds to recapitalize banks or deal with much deeper probable losses on Greek debt (50-60%). Those losses alone will gulp down a large chunk of the EFSF (not to mention post-default needs to stabilize Greece over the longer-term, which the Troika estimates at another 450 billion euros).

Listen, the yield on one-year Greek debt closed at 183%, a new record, and up from 169% the prior week. Yet on Friday, the market rallied on hopes of a comprehensive "solution" to the European debt crisis, and took heart that part of an 8 billion euro hold-over loan to Greece was approved. The 1-year Greek yield pushed 3 percentage points higher.

At 183% interest on the Greek debt, the debt would double every 5 months and more than quadruple every year. No amount of AUSTERITY will resolve this problem and the EURO UNION doesn't have deep enough pockets to pay for the debt.

I think you see the dilema here. This prickly situation cannot be brushed aside and it is suggested that those who have loaned the Greek goverment their money, may need to take a haircut of 50% or more. Doesn't it just make you want to go out and purchase some Greek Bonds right now?

Another Look At the Chart

If you are invested in Stocks, ETFs, or Mutual Funds you need to be prepared for a return to a Bull Market. I am hoping that we will get a SEASONAL EFFECT from the Holidays and I am preparing for what stocks I might hold for two or three months, but the signs seem to point to a continued BEAR MARKET.  Look at the chart below:

The orange triangle that seems to tilt-up is called a "RISING TRIANGLE PATTERN". If you look at the pattern closely and think how a bear attacks, it resembles the tilted head of a bear, with his neck close to the ground, coming in for the kill. This pattern does present to me an element of fear.

This pattern, suggests a return to the 10,000 level of the DOW. (see www.chartpatterns.com) Again, this is only a suggestion and you should recognize that the market is going to do what the market does. I hope that tomorrow, the market will resume and up-trend. But there are some things that indicate that the market might move lower.

Use Protection

If you have stock related investments and your philosophy is not a genuine BUY AND HOLD philsophy, consider how much you are willing to loose and then put a STOP-SELL on your investment. If the market does begin a decline, it could be a 10 to 12% drop before it begins to climb again.

Yes, I know some positive minded economists claim a 3% gain by the end of the year. I am not negating that idea and hope that it happens, but protect yourself. A very safe investment at this time are CDs (certificate of deposits). Like stocks, ETFs can be purchased and traded like stocks. Vanguard Total Bond Market (BND) gives you access to BONDS which will rise as stocks fall. Be sure to do your research by going to STOCKCHARTS.COM and entering the BND symbol. Another ETF is the iShares Barclays TIPS Bond Fund (TIP). REMEMBER the Bond funds will MOVE UP as the market MOVES DOWN. Should the market continue to climb, your bond fund will slowly lose value. I do think that these bond funds over the next year, will produce a return. BND has returned YTD 6.61% and TIP has returned YTD 10.23%.  And yes, I am invested in TIP and BND. A composite of 8.42% between the two bond funds YTD is not terribly bad in the light that the DOW has only returned 1.12%.

(Note: The above article is for entertainment purposes only and should not be considered investment advice under any circumstance.)

drinvest@mail.com