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.)