Dow Break Under 7,000 Imminent: Use It Or Lose It

IMMEDIATE ACTION: This is a brief note to prepare for a scary open Thursday morning, with a high probability of 7,000 breaking for at least a little while. This break will immediately trigger the second 1/3 entry of available funds that we have illustrated several times in the past few days. Once 7,000 breaks, as we’ve forecast since the November rally highs, the minimum expectation for the ‘5th subwave of WAVE 3 down from 14,200 will be in place, with potential for a test into 6,300. Continue reading

No Silver Lining

NOW: Some of you have notice the play for ZSL in our Trade Table and have asked for clarification. Here it is…ZSL is an electronically traded security that makes a 200% downside bet on the price of silver. So, if silver falls 10%, ZSL should rise 20%. If silver rises 10%, ZSL should fall 20%.

Our decision support system has alerted us of a “highly confident“ signal on this play. Therefore, we create an entry ladder and off we go. As you can see from the weekly bar chart of silver, there are five clean waves from the peak to the trough, labeled v of (A). The rally from the Oct. ‘08 low to the current level has retraces a Fibonacci 50% of the prior decline, a typical corrective measurement after a five wave movement. Also, the weekly stochastics are extremely overbought, and have rolled over, as have the daily stochastics (not shown). EVERY TIME WE GET A “HIGHLY CONFIDENT” SIGNAL, WE TAKE IT! Continue reading

Be Careful What You Wish For; Be Thankful When You Get It

NOW: Remember the past 12 years of market rally? The Dow broke through thousand point levels like a hot knife through butter. During the only serious pullback post 9/11, we were all too worried about terrorists invading our country and blowing stuff up to consider using the market low in 2003 around 7200 to invest. Besides, we thought it un-American to benefit from the pain and suffering of others.

As the Dow recovered and began its run up through 8k, 9k, 10k, 11k, 12k, 13k, and finally 14k, we all said if we only had that 7200 level back, we’d “back up the truck” and “mortgage the farm” to buy as much as we could at those prices. Hell, that would be a 50% Off Sale! Continue reading

Stocks About To Bottom

NOW: This is what we’ve been waiting patiently for since the November bottom, which we said would be “a” bottom, but not “the” bottom. Well, this is going to be a better bottom than November, so get ready to get back in the game.

A quick review of the daily charts of the major indices reveals a change in character of selling compared to November ’08. Then, all the indices were plunging simultaneously, making lower lows on huge volume and horribly bad breadth (decling stocks outnumbering advancing stocks by 4:1 or more). Currently, only the Dow is making new lows under those of November, while the S&P, NYSE, Nasdaq, and Russell 2000 are making higher lows than November ’08 (as of the time of this writing). This is called a bullish non-confirmation. It means that the other, broader, indices are not confirming the Dow’s new low. SHORT TERM, this is suggesting a rally is due, since the selling is concentrated in the Dow, while there is less selling, or more buying, in other sectors. Continue reading

Buy Index Funds? Are You Kidding Me?

NOW: The following headline came across the home page at CNBC this week: Forget Stock Picking, Pros Still Like Some Index Funds. Here’s the link to the story, This is a very dangerous story, as most won’t know how to read, understand, or make use of the message. In fact, there is typically no message to be had in these headlines anyway. They are just there to get search engines to take fresh content and move the website up to the top of the google search list.

In fact, index funds are VERY dangerous here near Dow 8000. Investing in them links the investors’ performance to the market average or whatever index the fund tracks. It totally discounts a professional portfolio managers skill in picking better horses and avoiding bad horses. If this was the best way of investing, thousands of investment and portfolio managers around the world would be out of a job. It would mean that those professionals, through their experience and hard work, had little ability to add value to the investment game, and that the calculations and research they do on a daily basis was worthless. Wait! Maybe it’s true, and maybe we’re all better off avoiding investment advisers completely. Afterall, they clearly didn’t know how to avoid the worst market in 75 years last year. On the other hand, neither did our Federal Reserve, which is headed by THE supposed leading, living expert on the Great Depression. Continue reading

Compound Destruction: Or, The Death Of Buy And Hold

QUESTION: What message are we to understand that those that have failed to pay taxes are being placed and considered for current cabinet positions? Would the White House spokesman please issue a press release to our children?

NOW: The ancient Greeks believed there were seven great wonders of the world. By the 21st Century, only one remains standing: the Great Pyramid of Giza in Egypt. It is said that Compound Interest is the eighth wonder of the world. The ability for your money to earn money on the money it earns, or interest on interest. Albert Einstein is said to have called it one of the greatest mathematical concepts of our time. This was especially true back in the 1970’s and 1980’s with savings accounts, treasuries, and CD’s paid double digit interest rates. Back then, we could easily figure out how long it would take our money to double in value by using the “rule of 72”. This equation tells us that if you divide the number 72 by the rate of interest you are earning, you come up with the number of years it takes for your original dollars to double. For example, if you were holding an 18% CD back then, it would take 72 divided by 18, or 4 years for your money to double. Currently, the calculation isn’t worth the brain cells to figure out. Your 2% CD would take 72 divided by 2, or 36 years to double. The only scenario this would be considered attractive is when compared to the chance of losing your capital in the risk markets (stock, bonds, commodities, real estate). Although we warned about it in these pages months ago, when the Dow was 13,000+, it took the worst losing year since 1931 to bring it to public awareness: “there are times (like 2008) when it’s more important to worry about the return OF your money than the return ON your money“. This concept is not quoted at least once a week in some form of media. Continue reading