The current unbiased status of the three major market indices is always available via some standard technical analysis. This year has been a soom for the stock markets and convesely a bust for the economy. What gives? by Frank Trades
(libertarian)
Sunday, December 6, 2009
The recent "recovery" has been a tenuous one, without any basis in fundamentals, bases for judging a company's value; see this definition: [link edited for length].
The link below is for a chart below is from www.Stockcharts.com, which allows for limited use of its materials with its source cited.
The horizontal lines drive home the futility of a "buy-and-hold" strategy for stocks so typically employed by many members of the public. The two prominent peaks in 2001 and 2007 are the NASDAQ Bubble and the Mortgage Bubble.
There many so-called "technical" tools that help interpret charts of this kind in a way that allows you not so much to predict the market, but to understand its status and allow for a reasonable determination of the probability of its next move. For example, note on the chart that prices have risen back to the levels of sideways price trends that occurred in 1998, 2001 and 2004. This is no coincidence. Price support (support inhibiting further price drops) and resistance (resistance inhibiting further price increases) are often quite obvious features of such charts. The bars representing price ranges for the given time period (in this case months) are called candles and have their own stories to tell. Here is a good introduction to candles:
Nisson's books are the Bibles for this technical tool. But I find that when they are used alone, candles do not provide sufficient information with which to judge a market (via the 3 major U.S. stock market indices, the S&P 500 the Dow 30 Industrials, and the NASDAQ Composite). But candles do give important reads on how prices are behaving within a given time period.
Here is another issue that got me interested in trading stocks. The days of standard retirement pensions are past; 401k’s and IRA’s are sorely in need of direction because the stock market is largely a gamble. Forget social security, it is not a dependable strategy (I think Bernie Madoff could have done a better job with that than the U. S. government -- it's really nothing but a Ponzi scheme). Yes, you can maybe make some money long-term with the standard "diversified" approach to "investing," as invented and promulgated by those who have as a primary goal to make their money from yours. But that is all there is, and if you want more you will likely have to make it work for yourself.
I will try to provide a monthly article here to provide a market analysis that can help you guide own investing. I am an amateur and not licensed in any way to advise anyone about investing or stocks. So you can take what I write only for what it's worth and solely on that basis.
repeats the advice: look at the market in terms of 1) where it is, and 2) how it got there. November brings us to new highs again, but up against pretty stiff resistance. That's where we are. We got there via a massive drop from the top of the Mortgage Bubble and a bounce equal to about 50% of that drop (our "recovery"). Given the economy in the dumpster, why, fundamentally, is that the case?
Trillions of dollars were given to financial institutions by the government this past year. Ostensibly this was to loan money out. They did precious little of that. They had to park the money somewhere. They bought bonds, driving up their prices and in the process depressing their interest rates -- but that's a story for another time. Banks who were enabled, then could borrow from the Fed at an interest rate of just 25 basis points (0.25%). Wow! What a loan deal. They took whatever money they could get at that rate and invested it, with much in the stock market. Stocks went up. But those price increases were not supported by sufficient volume. See the volume bar chart under the SPX chart linked above. Notice that as prices fell, volume increased. That sort of inverse correlation between price and volume is extremely bearish (favoring lower prices). Under those conditions, the bounce up to the current higher prices is often termed a "dead cat bounce"; a price increase on low volume following a precipitoud price drop.
Under those circumstances, a real danger remains that prices could go back to those March lows. Wouldn't that be a trip!? At the very least a price drop equal to about 38% (a Fibonacci number, but more on that another time) of the total increase off the bottom needs to occur to stabilize the recent uptrend. There are both fundamental reasons (weak holders are eliminated) and technical reasons (Fibonacci-based price movements are very typical of market price movements) for these kinds of market movements.
Bottom Line: be very cautious here. Personally I have been out of the market for a while awaiting this major price drop -- better safe than sorry.
Remember to work with a reliable professional to provide investment advice! Trading stocks cannot be done as a hobby. It takes at least a part-time commitment.
My favorite book on this topic is "Timing the Trade":
The views expressed
in this article are those of Frank Trades only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Frank Trades is solely responsible for the contents
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Posted By: Jahfre Fire Eater
Date: 2009-12-07 18:59:04
Hi Frank,
I held onto my mining and energy shares until very recently. Now I'm out of stocks too. I expect to see the Dow below 5000 before it ever sets a new high. I plan to miss all the action on the way down. It just looks too risky to me. I may be totally out of stocks for several years to come. Out of stocks, out of cash and out of debt. I think I'll just watch for a while.
