Today's Market
by Dr Invest

After yesterday's post, I did a little more research on the Triple Top Stock Pattern. The S&P 500 is displaying this signal over the LARGE MARKET. This is disconcerting at the least and if true, it is potentially an event of a great magnitude. I am fully aware of the market exuberance and the bullish trend purported by most of the investment community. This exuberance continues in the light of a weak GDP and poor growth. Even with continued stimulus purchases by the Federal Reserve, the government's own estimations of growth for the remainder of the year is a tepid .8%. We are moving into August and September, months with traditionally poor stock performance as seasonal averages. Adding to this world-wide recession, lower corporate profits, and over 4 years into a bull market that typically falls to a bear market between the 4th and 5th year, and you have multiple factors that could set the market up for a serious downtrend.

THE TRIPLE TOP

If the overall market is at a TRIPLE TOP (pattern), then the outcome is a move below the baseline. As predicted by Chris Martenson, a 60% decline could be possible. This is why John Hussman sees the gains brought by greater risks, completely erased by a sudden decline in the market. Remember that if your portfolio simply falls 50%, you must see a 100% gain to return you back to your original portfolio's balance.

In this scenario, the S&P returns to the baseline, losing 800 points and possibly even another 800 points as it plunges below the baseline/support. This means repeating 2008 and possibly even below the lows of 2008.

DOUG SHORT

So, what is fundamental analysis telling us about the SP500's potential "Triple Top" pattern? Interestingly, a broad market valuation measure called the "Tobin's Q Ratio", which has spotted every important generational stock market top of the past century, shows that stocks are quite expensive and comparable to past valuation levels that occurred at important prior market tops:

Chart Source: Doug Short, Advisor Perspectives

A historically-successful investment strategy is to buy stocks when the Tobin Q-Ratio is low, like in the early-1950s and early 1980s, and sell stocks when the Q-Ratio is high, like in 1929, the late-1960s and in 2000.

Go to: http://cybertradinguniversity.com/new/uncategorized/is-the-sp500-forming-a-triple-top-pattern/
to read the details of what someone else also discovered regarding this TRIPLE TOP FORMATION.

THERE IS ONE OTHER POSSIBILITY

Admittedly, there is one other possibility in this TRIPLE TOP PATTERN, a TRIPLE TOP BREAKOUT. This would present a remarkable buying opportunity, with the S&P 500 strongly rising another 800 points. The problem is that we don't have anything near a dynamic growth in the market, so this scenario seems very unlikely.



THE POWER OF GOVERNMENT MANIPULATION

Over the past year and a half, I have seen the power of the Federal Reserve in action. The promise of stimulus kept the stock market rising, and then when promises could no longer keep investors in the market, Bernanke began his massive QE through the purchase of bonds and bad mortgages. That step moved the FED from an adviser to an actor. The market could not fail, because the FED was invested along with the banks, funds, and private individuals. Even the hint of reducing QE put the market into a swoon, sending mortgage rates to new highs. Only after a carefully worded apology by Bernanke, explaining that no reduction would occur in the near future,"maybe... er... unless I think it necessary...but...uh...I don't think it is necessary now...umm... if unemployment stays above 6%...but ...er... then we might consider reducing bond purchases... uh... if we want to!" so said, Bernanke. But cautiously accepting this new apology by Bernanke and believing that Bernanke would now play fair, the STOCK BUYING PARTY has continued, pushing the market indexes higher and higher.

It seems to me that the Federal Reserve could keep the market climbing. In May was a clear Head and Shoulders Pattern, but Bernanke's promises to keep the bond buying pushed the market out of this potential deadly pattern. So here we are again, a pattern that portends a solid downtrend, only the market knows if it will accept Bernanke's reassurances that the Federal Reserve will keep the Bear's at bay.

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

Today's Market
by Dr Invest

The market continues to hum along, advancing day by day. It seems that some energy has come out of the market and CYCLIC AVERAGES are not favorable for the months of August and September. One would expect a decline in the market over the next two months. The problem is that an artificial market, bolstered by central bank stimulus, doesn't respond in predictable ways.

The Federal Reserve has created a cash conundrum in that, stocks are too overpriced to get into the market and bonds are in a bubble that could collapse at any moment. Major investors are still holding cash, and are reluctant to enter stock positions where prices could collapse at any moment. Many financial advisers, touting the BUY AND HOLD philosophy, are now boasting about their returns. Since 2009, the S&P 500 has risen well over 100%, but most portfolios have not realized these theoretical gains. (Theoretical, because when stocks collapse, advisers rebalance their customer's portfolios.)

So while some portfolio managers gloat over new found successes in market (based solely on government stimulus), many have failed to look at the overall pattern that is forming over time. This is a BIGGER pattern based on the LARGE MARKET. Central Banks can control the "small market" moves, but patterns and bubbles can form that can are too big for Central Banks to control.



The Federal Reserve has done numerous stimulus programs. Before the fall of the market in 2009, the Federal Reserve attempted a stimulus program but the LARGE MARKET move downward was unstoppable. The market may well continue upward with a breakout and stock market growth over the next five years, however; a weak GDP and world-wide recessionary pressures would not make this scenario a favorable outcome. Chris Martenson is forecasting a 60% decline in stocks, to begin at any moment. (Look up the Triple Top Pattern)

I believe that each of these peaks is the result government interventions in the market. Provide people easy money policies and they will spend, but eventually this continued spending will bring the market to a point of exhaustion. We can see two peaks in the above graph showing that point of exhaustion. We are now at the third peak.

Below is a forecast for business cycles by Princeton Economics LTD. Martin Armstrong built a 8.6 year Economic Confidence Model that is fairly accurate.



As with all "generalized models" the stock market has not followed this cycle perfectly and we can still point to the intervention of the Federal Reserve, changing these normal business cycles. The Economic Confidence Model does show a downtrend in the cycle beginning in August of 2013, continuing until September of 2014.  Will this be an entry into a recessionary period?

An investor needs to be aware of potential market trends. Stocks, overvalued, and monthly cycles turning potentially turning downward in August and September, could affect short-term profits in a negative ways. Moreover, there seems to be models that forecast a downturn in the business confidence cycle beginning in August and extending into the fall of 2014. None of this may happen and all of it may happen.

These potential trends would not keep me out of market, but when combined tepid GDP growth, I would be motivated to avoid the risks in the market.

(Note: the above information is for entertainment purposes only and not to be used as investment advice.)

Today's Market
by Dr Invest

Well, the test is finally here. Moving into a new earning season, will we see the continued corporate profits or will we see deteriorating corporate income. Will we continue to see a decline in unemployment or will employment remain flat? We can only speculate at this time whether we will see a continued rise or a coming decline in stock prices, but both world markets and the U.S. market seem to be slowing down.


We have been told by the Federal Reserve that the economy is rebounding and investors are relying on this fact. Certainly, with the manipulation by the Federal Reserve there are no longer characteristic expectations from the market. The STOCK ALMANAC is almost useless and all predictable stock patterns have become entirely unpredictable in the light of increased volatility.

Looking at the stock averages below, we see a poor chance of stock gains in August and September. July is half finished and while the S&P is reaching for new highs there seems to be some caution signs ahead.



At this time, I remain largely in a cash position. I am holding small positions in TIP and MBB but I am waiting to see if these positions decline further before selling. Though market expectations are for unlimited gains, I remain uneasy with the increased market volatility and wait for a 20% to 30% decline in the market before reinvesting. This decline could begin at anytime, but is most likely between January and June of 2014. Nearby triggers are budget fights this fall, continued conflicts in the Middle East, and increased costs from the taxation and the implementation of Obamacare.

You can't hardly remain out of the market, but you can't hardly get into the market because of the volatility. I would rather lose my opportunity to make 15% now, than to lose 40% later. So I'm setting on the sidelines until October and then considering the climate at that time.

(Note: the above information is for entertainment purposes only and not to be used as investment advice.)

Today's Market
by Dr Invest

The report of a 1.8% growth in GDP simply proves everything I have been saying for months, our bull market rally is simply, BULL! There is NO REASON for elevated prices in stocks, other than liquidity pumped into the market by quantitative easing.

After I had first gotten married, I remember how I was struggling to pay my bills. Yet, a peer of mine had a large home, new furniture, new cars, a boat, the latest gadgets...  however; I was certain that he earned an income that was near my own income. I would guess, at that time he was earning $20K a year, but living like he was $80K. One day, when he was in a talkative mood, he began to tell me about his financial successes. The key to this visible wealth was DEBT. He joked about "owing the banker the shirt off his back", but the enjoyment all the things was too great for him to change his debt load. A year later, with a downturn in the economy, my friend lost his job and all his THINGS.

Our nation's GDP is growing at 1.8% and expected to grow no more than 2%, yet the stock market is growing 12% to 18%? This morning the spin-masters are already sending a boat load of positive articles, reminding us that BONDS are whack, that GOLD is moot, and that STOCKS are destined for end-less gains. Even though everyone saw the volatile reaction of the market at the suggestion of a reduction in stimulus, the stock brokers are now advising them to get into the market because there is no finer time.

Your financial adviser or broker is not typically interested in your portfolio growing, he is interested in moving your funds around to get additional fees and bonuses. He is guaranteed a management fee, but there are also sales fees and transaction fees. Moving you to a "new" fund or taking on a "new" position in your portfolio is often more profitable to the financial adviser than to you.

THE KING'S CLOTHES

We have known for a long time that governments "cook the books". The way that the CPI is figured has been changed, so we don't really get a true sense of our real inflation. The way that unemployment is figured by the government doesn't truly reflect the depth of our unemployment. Can you ever remember the government under estimating the GDP? No, at the end of the year, it is always...ALWAYS... revised downward. So the present 1.8% GDP may be even lower.

If you ask anyone about inflation, they will tell you it has gone up. If you ask anyone about salary increases, they will tell you that they have gone down. Like the government, many individuals have found themselves earning less, but spending more.

Like the story of the King's Clothes, we have been told how beautiful the investment opportunities are but are in danger of exposing ourselves to public ridicule for putting our trust in those whose goal is to take advantage of us.

No one can deny the fact that stocks continue to climb, but when it is time to REDUCE LIQUIDITY in the market, there must be MONETARY DESTRUCTION. If you don't understand this term, look it up on WIKI. When a stock is overvalued, people can be influenced to pay the overvalued price, but at some point people will clearly see that the price of a stock is overvalued and sell their stock. Because they sold when there was still a demand for the stock, they made a profit. But others, beginning to see the sell of the overvalued stocks, can stay in that stock hoping for a recovery to even a higher price. (FOR EXAMPLE APPLE STOCK) When the stock goes down so much that there is PANICKED selling, then even the most positive investor is compelled to sell as well. The difference between the "high price" and the "low price" of the stock will be the monetary destruction and could amount to BILLIONS of dollars lost to monetary destruction.

As cynical as I am sounding, the government wants EVERYONE to get into stocks so this monetary destruction can take place. Yes, the government has bought BONDS and holds BONDS. Everyone now wants out of the bubble the FED created.... so they run to stocks... boom.... a sudden market downturn with investors loosing BILLIONS in stock value.... this is monetary destruction. You lose stock value and run to bonds...SOLD TO YOU BY THE GOVERNMENT. The government is now out of bonds, and you are holding those safe bonds after having lost 30% to 40% of your portfolio.

Life is good, when you can print enough money to move the markets and then destroy the money you printed by monetary destruction.

LOOK AT THE WEATHER

It is partly cloudy with thunderstorms in the forecast. The world economy is grinding to a halt. We are scheduled to have another government cut to the budget in October. In October, people will be signing up for one of the most expensive healthcare programs in the world with employers scheduled to carry one of the most burdensome financial expenses they have ever known, and 21 new fees and taxes will be implemented to cover these healthcare costs. Please think about it!

Though there seems to be some positive results in employment and corporate profits. These are hardly vibrant enough to warrant another 12% gain in the stock market.

(Note: the above information is for entertainment purposes only and not to be used as investment advice.)