Today's Market
by Dr Invest


Over the past months, I have pointed to several key challenges for the casual investor. First, stimulus has changed the normal cycles of the market, creating distortions that make the market appear more robust than it really is. The new criteria for measuring GNP, creative accounting when it comes to measuring inflation, fudging the numbers on unemployment are all the new norm for important data provided by the government that the investor needs to make sound investments.

Added to this are the all-time high profits recorded by corporations, the highest PE (Schiller), and a remarkable climb in the market only known when GDP was at a high point; these distortions are all part of government market manipulation and government propaganda.


Indeed, no one can predict where the market will move as central banks attempt to keep their stagnant economies vibrant. This unpredictable condition can be called a "High Risk" condition. Hussman, Rogers, and Faber believe that whatever gains may have been achieved over the short-term will be lost by a rapidly declining market. Because of computer trading, the market can decline hundreds of points in a day and instead of a stair-stepping down, most market declines can appear as though they have fallen off a cliff. A good example of this was the "flash crash".  Investors are already overly cautious, even though presently invested. Most have stop-sells in place and the winners will sell out before a deep down trend sets in.

The above chart simply makes note of business cycles and patterns that may or may not apply. My guess is that the market topped on July 29th and that after a short correction, the market will top again around the end of December, collapsing as we move into 2014. The risk is too high for me to be invested in stocks at this time. I would prefer to see the market do more than correct by 10%. I am waiting for a 30% to 40%   correction where I can enter the market as it nears a new low.

Volatility in Egypt and continued decline in the European market will affect the present market. I projected in May, a potential "Head and Shoulders" formation. Bernanke's renewed commitment to stimulus moved the pattern into a "Break-out". Our own GNP and world-wide growth has been so low that the actual potential growth in the stock market should be around 1.8% or less, yet we are seeing double digit returns.

In my July 19th blog, I showed a bar chart of monthly averages from the Trader's Almanac. Both August and September have been traditionally bad months for stocks. The recent down trend in stocks is proving that the market is following the typical business cycle. Today, several analysts suggested that we would see a decline of 10%.  Looking again at the above chart, you can see that the market hits an all-time high, loses momentum, regains the previous high, and then begins trending downward.

I am projecting that a similar pattern will take place between now and January of 2014. Please be aware that the Federal Reserve will be trying to circumvent this pattern. So, just because the pattern exists, doesn't mean that the pattern will result in a recession. What I am saying, is that the probability of a recession is growing and could happen at any time or later that projected, but it will happen.

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