Today's Market
by Dr Invest

Today, however momentarily, saw the market in a real way. Since the middle of March the DOW has been in a place of accumulation, it is uncertain whether the DOW will move up or return to mean. Look at the chart below:

What is depicted in this chart is a HEAD & SHOULDER'S PATTERN returning to a previous low. (The low could be 13,000 or even 12,500) This is a short-term downtrend in the market that will likely end by early to late July.

It is possible that the present trend marked in light blue, will continue upward. But I am expecting that given no more than a month, we will see the first down leg of the head moving to the right shoulder shown in the brown. Many traders do sell in May to take profits. There are a number of indicators showing a slowdown in the market and the North Korean effect, along with continued deepening of the recession in Europe will all play their part in seasonal slowdown. Since we have been measuring the ebb and tide of recessions, the average length of a bull market has been 4 to 5 years. We started into our 5th year in 2013. Investors have been told to trust the U.S. government, they will keep our markets safe; yet, experience shows us that the government prefers the banking institutions over the investors.

Investors will throw good sense to the wind and will really begin in earnest buying stocks toward the end of the Summer, expecting the current trend of growth to continue. The brief downtrend will be seen as a buying opportunity, not a reason to get out of the market. A small 10% correction could be followed by a buying frenzy that returns the market to the all-time highs and even moves into the 15,000 range for the DOW. But beware, this exuberance could be followed by a 30% to 40% drop in the market.  The Federal Reserve is certain to encourage the growth of stocks by their QUANTITATIVE EASING, but there are already signs of increased inflation showing up in commodities, and the dangers of inflation can out pace the benefits of more liquidity. Several economist are already predicting that this over exuberance in the market will end in tears. I agree!

Rather than investing in stocks when they have reached a 4 year high, I am waiting for a significant fall in the market. A 10% decline is not what I am looking for. I am looking for a 30% to 40% decline. That kind of decline would be definitive and would open the door for investment and some real gains.

Call it investment discipline, either you are all in or all out at this time. If you are all in, then protect your stocks with a STOP-SELL. If you are all out, then wait for a more prime time to enter the market.

I mentioned in the previous article, John Hussman's definition of RISK as being a predictable outcome, verses UNCERTAINTY as an unpredictable outcome. While I believe that the Federal Reserve will do everything in its power to keep the economy functioning, I also believe that what the Federal Reserve is doing experimental (its never been done before) and will have an UNCERTAIN OUTCOME. I don't want to expose my life savings to this kind of unpredictability.

For now, I remain in TIP and BND. I am out of IAU and WMT presently. In the next few weeks, we should see TIP and BND begin to perform better. I am reminded that it is better to be out of the market wishing you were in, than to be in the market wishing you were out.

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