Today's Market
by Dr Invest

Shocked! Only a few minutes ago, I had looked at the DJIA (DOW) seeing it down only 30 points. Passing by my screen later, I could see it had declined 50 points. I assumed that the market had closed and the DOW was somewhere around 50 points down. Looking closer, I saw the DOW down almost 143 points.

Spain had been given 125 Billion by the EuroTribe but it did not quell the sick feeling that contagion would sweep into Portugal, Ireland, or Italy. Furthermore, the Greek elections will be held this coming week-end and new political winds are likely to blow Greece out of the Euro currency and back into their Drachma currency. There is complete uncertainty about how this would effect the EURO.

Some think that as countries escape from the EURO they will print as much of their currency as they want. Then a domino effect will take place. Other countries would say, "Forget this austerity, I can print my way out of debt! If I owe China $500 Billion in EUROS, I'll return to my own currency and print enough of my fiat currency to payoff that loan.

In Greece 20% -25% of the people are public sector employees. Many more are retired and dependent upon the liberal pension funds they receive from the government. Printing more currency helps the government meet the immediate demands by the people, but they are paid with an inflated currency. The new French president, Hollande has proposed that the EURO should grow its way out of the recession. "Borrow more money.", he says, "Then invest into infrastructure to pay workers, who will buy things, and companies will produce more, and all of the EU will be flying high." Kinds sounds like our present plan in the U.S. doesn't it. COULD I VOTE FOR HIM IN THE UP COMING U.S. ELECTION?

Someone said, "It is like 10 very poor countries voting in a union of eleven countries, that the one rich company (Germany), should cover all their debts." That's a nice idea if you have no money and can't manage your own financial affairs, but a poor idea if your nation has worked hard, saved, and exercised good financial management.

Some of you Kensians are going to disagree with me, but economies are limited in growth by the lack of demand for product. For example: I make 20 widgets to sell in my neighborhood, but there are only 5 people that live in my neighborhood. Even if 100% buy a widget, 3/4 of my widgets would remain unsold. Even if I went from house to house giving all 5 of my neighbors one-thousand stimulus dollars, there is no gurantee that they would spend it on my widgets.

G. Bush stimmulated the economy by giving each household a check. I got one! Do you think I went out with my $200 check and bought a "new thingy"? Look, I put that money so deep into a bank account, that I still can't find it! I'm sure many people spent theirs right away, but others were like me and horded their check.

OUTCOMES

The last minute drop in the DOW was a surprise to me, I wrongly thought that Spain's bailout would have insured a rise in the market. I am not invested into stocks at this time, nor gold. The BOND FUNDS, TIP and BND both rose today in value. If the EURO continues to fall in value to the U.S. dollar, gold will also fall. I don't really see an end to the downtrend in the Market at this time. Look at the technical chart below.

Remember that technical analysis is not a science, it is more of an art. The market moves in "real-time" and there are no absolutes. A sudden war with IRAN will change every rule used to interpret a chart. For example, look at the YELLOW BOXES. These represent hopes by the market that Bernanke would stimulate the economy with your tax dollars. Even though there was  clear "head and shoulders" pattern in May, the expectation that Bernanke would stimulate the market, led to a spike in speculation. Most recently, and documented in this blog, was the expectation that Bermanke would absolutely stimulate the economy as defined by the last yellow box. So the technical analysis becomes difficult when an "Irrational Exuberance" pushes the market higher by hopes that the FED will do "one more stimulus package".  Even today, a trader was talking about Bernanke coming to his senses by the end of the month and doing a stimulus in the U.S. economy.

The red lines indicate an average fall in a downturn. (see blog on May 16th) Sometimes the DOW turns down more other times less, but most of the time the downturn is as illustrated on the above chart and used to project the possible downturn over the next four months.

I think it likely that we will see the DOW move down to 11,200 and that is is possible that it will move down to 10,200.  These are only estimations and not reliable for trading. For instance, we don't know how quickly it will move down. The DOW could move sideways for weeks and then plunge down or plunge down, rebound, and plunge down again. I think what is important is that it doesn't seem like the DOW is suddenly going to rebound to hit 14,000 points.

Regardless of where the immediate moves may take the market, stick to your Ivy Portfolio trading strategy. TIP and BND seem to be a good investment position to take. Use the 10 month simple moving average as a sell or buy signal. When the price of TIP or BND falls below the 10 month SMA, sell....but only if it is the first day of the month. According to Harvard Business School, this is a desireable method for investing. See http://www.advisorperspectives.com/dshort/updates/Monthly-Moving-Averages.php

(note: the above article is for entertainment purposes only and not to be used as investment advice)