Dow Target 6,617, October 25, 2009: Here Is Why

reply to post by GreenBicMan


The only thing I would like to point out to you, is that your assumptions are correct IF this economic contraction and stock market downturn are comparable to the previous ones you mentioned. The debate to me, is really how different is this, and is this the economic downturn that is paying for the borrowing it took to get us out of all the other recent downturns.

I think if this was a simple bubble bursting, you would be correct. However, this is a credit contractions based downturn based on multiple bubbles bursting at the same time. The 1930's are the most comparable. You may argue that it was a trendline that we failed to take out. However you fail to see that the market at that time was overheated due to excessive liquidity in the market due to easy to come by credit. The Great Depression was the only other economic downturn besides this one that was caused by a credit contraction.

So here is the reality of the situation; we have not fixed the problem that got us into this bad economy. So some time we will have to fix that problem. We may rebound from this current downturn based on increased borrowing and govt spending, but the problem is still there. What is not predictable is when we will face these problems. They could be this fall like some say, and they could be years from now. What is certain though is that we will have to face them at some point. And given that we have 40 years of this built up now, my fear is that the day of reckoning will be a very ugly one.

GreenBicMan, you are obviously an intelligent person. However, many of the conclusions and calculations you have made are based on a world that operates in a vacuum. It is not all simple comparisons to history, if the comparisons aren't applicable. You are comparing example of health problems and how the body recovered after, but then failing to understand that what caused those health problems was cancer and that cancer is still there....

reply to post by johnny2127


Interesting thought, but as I have pointed out "my theory" states the market is efficient in identifying history as a whole and its outcomes are stated upon the theory.

I know most of you will not agree, but give it time. So far its been 99% accurate.

Originally posted by GreenBicMan
reply to post by johnny2127

 

Interesting thought, but as I have pointed out "my theory" states the market is efficient in identifying history as a whole and its outcomes are stated upon the theory.

I know most of you will not agree, but give it time. So far its been 99% accurate.

The efficient market theory is hardly yours, and has been proven routinely wrong. Those that subscribe to the efficient market theory also seem to forget that the market wasn't efficient when it forecast no housing bubble, or credit contraction. Keep in mind the market multiple times in 2008 rallied tremendously based on actions of the govt. Then subsequently fell.

The issue with what you are saying is that the market is not being driven by macro events or facts right now. Its being driven by the hope that this collapse is like others, and consequently based on historical norms should be coming back now. If you notice, every time facts come into the market it moves downward. Then hope and conjecture move back in and the market moves up.

However, the market is eventually efficient, as you state. Your mistake is assuming that at any given point a market is efficient or reasonable. Over time, a market is efficient. However, in between times of efficiency there are unreasonable market highs and lows. Unreasonable optimism and pessimism. How do you know which point you are at? You choose to to say its efficient now based on comparisons to other economic and stock market downturns. However, if all the proof points to this being a different beast, the comparisons aren't valid. If anything they point out and show how people get caught in bear market traps.

Personally I will not predict when we will have to pay the piper. But I know its something that will happen. History tells that as well. I would guess sooner than later, but its just a guess. But when the PE of the S&P 500 currently is pricing in economic growth of 5% a qtr for 4 straight quarters, that means the market is ahead of itself even if we are rebounding. A 23% compounded economic expansion obviously isn't happening in the next 12 months.

Originally posted by GreenBicMan
reply to post by Rockpuck

 

A reply to your last sentance.

That is incorrect.

The MARKET tries to ANTICIPATE the ECONOMY in 6-18 months = FWD LOOKING INDICATOR

To this I agree, though perhaps not so far in advance as 18months, but again this is assuming "buy and hold" which generally speaking that's a fast dying trend, no?

The knee jerk trading as of lately don't seem to look more than a month or two in advance.. one ounce of "better than expected" news can spur the market.. if we followed corporate earnings and rational data, the markets would more likely have had a slow and steady rise from its lows, not shoot its self out of a cannon.

But we both know a few very undesirable stocks are floating the markets with insane volume.. not so much predicting the economies rebound as it is a revolving ATM.. the real economy was getting better, but it probably won't last.. and companies are scared.

Why just this week Kmart/Sears began offering debit accounts on debit cards redeemable at their stores for the christmas season, with 3% interest. Very scared about Christmas.. at least, the economy is.

reply to post by johnny2127


I am going to say what I know, and see, and you can do what you will with it.

In January, 2009 I picked 12 "orphan" stocks (nobody wanted them) and used a couple of free, well-known websites to examine their "fundamentals."

I went to the company sites and looked to see what they had to say and what they were doing.

By March, I narrowed my list to 5 and executed 5 "buy" orders at specific prices BELOW where they were trading at that time.

As of Friday, Sept. 4, 2009 the results are:
Stock 1, up 154% and trending flat to higher.
Stock 2, up 115% and trending steadily up after a 3 to 1 split.
Stock 3, up 275% and trending strongly up.
Stock 4, up 139% and strongly up.
Stock 5, uo 202& and flat to up, but underpriced.

Before October 15, and probably before Sept. 30, I am taking all profits in 1, 4 and 5. I am liquidating 2 and selling all but 50% of my initial investment.

I have a new collection of "orphans" and will immediately by 2 with the proceeds. I will hold the remaining cash until the market is down between 10 and 30% from its Friday close.

Here's why:

The current "recovery" is MANUFACTURED. All the weekly dribbling of "green shoots" and "end of recession" is being fed to people who want to invest and encouraging them to buoy the market DESPITE real evidence that the economy is in doldrums, and that the bottom is about to fall out.

Just watch what the "pundits" are saying/posting. Compare the actual numbers and facts.

Unemployment at a 26 year high? "It is not growing as fast as it has."
(Private industry jobs over 10 years have increased net 25k; gov't employment has increased 225%.) What is Obasma REALLY saying? "We (the gov't)have created 1 million jobs." NOT real jobs, but gov't expansion!

"Housing sales are up 15%?" Starts are down, the tax credits are expiring, and credit is still tight. Housing inventory has not changed, as more enters to fill the void created by artificially supported sales.

"Spending and trade are higher?" Auto sales were inflated by government programs and financed by government loans (who do you think finances Chrysler and GM sales? The 'owner', Barack Obama.)

Watch consumer retail and consumables. Watch what the REAL numbers of unemployed are (at least 15%; many have quit looking, don't qualify for more unemployment benefits, or are working part-time, so they are NOT COUNTED in the gov't figures and forecasts.)

NO ONE want to buy our short-, medium-, or long-term debt. The Japanese and Chinese are LIQUIDATING their holdings of US treasuries.
NOTE: recently both Treasuries and equities have been moving up SIMULTANEOUSLY! That is artificial - money normally moves from one and to the other. The Fed is inflating Treasuries by buying, and the false 'good news' gulls the small investor (you and me) into equities.
It is a TRAP!

You will see, and hopefully have seen, that over the past 6 mos., "good news" trickles out to keep markets up and counter real information from the private sector.

The market is going to correct by 10 to 30% very soon. Before the end of October.

There will always be good stocks in any market, up or down. Look what the "insiders" are doing. Are they selling or buying? Do they have special status vis a vis the gov't.? That is, are they in industries and sectors that Obama wants to subsidize? Do their management/directors have any special influence with or position with Obama's administration?

Watch carefully. Think objectively. Act aggressively. But, above all, do not act on "good news" pushed out to deflect attention from negative fundamentals.

Good luck.

jw

reply to post by johnny2127

You are right. The market is generally efficient, historically.

It is not "efficient" today. It is being propped up by inflated "profits" from stripped-down businesses, and factually unsupported "recession bottoming out" good news.

This skews the market and fraudulently buoys equities, much as the Fed buoys securities buy buying Fannie and Freddie loans and our short- and medium-term obligations.

If a private citizen did this, he would be locked up. When private citizens realize this, the game is over.

Originally posted by Rockpuck

But we both know a few very undesirable stocks are floating the markets with insane volume.. not so much predicting the economies rebound as it is a revolving ATM.. the real economy was getting better, but it probably won't last.. and companies are scared.

Don't be shy. AIG, CITI, BofA have accounted for as much as 30% or recent volume! Dollar stocks driving the market? Short squeezes will destroy thousands of individual investors.

As for 'a month or so' future indicators, that's way too far. It's a true "knee jerk" reaction where the market moves WITH the "good" news.

This would be illegal market manipulation if it wasn't being perpetrated by the government itself!

At some point soon, the actual facts will overpower the false hopes foisted on the unwary.

The market indicates NOTHING right now except the desperate tactics of a fearful government.

Mark my words.

jw

[edit on 7-9-2009 by jdub297]

reply to post by johnny2127


Honestly, yes it was lol


Take a look before what happened in 1974 and you tell me how efficient the marketplace is

Im telling you mang' just take a look

Same look with the 200 EMA trending on a very bullish pattern higher with multiple crossovers of the 20 and 50 EMA on top of that, if you don't bother to look, thats cool, just take my word brother.

reply to post by GreenBicMan


You are being fooled by moving averages that have been skewed. Take the short squeezes of AIG, et al out of the market, and it is DOWN in volume and numbers!

Technical analysis is only as good as the underlying fundamentals; and, right now, the fundamentals are pure crap for the most part.

I believe your overall approach is correct. But, thousands of investors are being lured into the market, and into particular sectors, to negate the underlying downward trend that has developed since about July or so. I can't tell you the date off the top of my head, but it is definitely not a bull anymore. It IS bull.

jw

reply to post by jdub297


jdub!! come on dogg know your historical market patterns!!!!

Volume is everywhere, but AIG and such cannot be attributed percentage wise for any gains in the marketplace as its really split adjusted at 4 dollars a share or something pathetic

Volume in all sectors will now rise - summer is over

But seriously, take a look at NASDAQ 2003 and all the other years I have mentioned and you will see we are "stairstepping" and I have been calling this for quite a while.. I have been VERY WRONG before, but usually am very correct on my longer term calls

reply to post by GreenBicMan


The problem here is you are arguing very different things. I know technical analysis very well, and one of the things it is not, is a forecaster of macro economics. Personally I am a big believer in using charts and technical analysis for some things, but given the nature of technical analysis, they are right until they run into a black swan type of event.

All this technical analysis and your charts and the moving averages are showing is that, the stock markets unless acted on by a force not affecting the markets now, will continue to move up in the moderate term. However, the point many of us are trying to make, is that there are many other factors yet to weigh on the market but will. Technical analysis is a fantastic tool to have in your tool box as an investor or investment manager. But by itself it can prove highly destructive to portfolios over short periods of time.

And no, sorry to say, you did not come up with the efficient market hypothesis. Unless you are Eugene Fama.

reply to post by jdub297


Yes this strategy can work very well. Regardless if this is a bear market trap or a true recovery, this trading strategy can work. Of course one must protect these positions should the market go the other way on them. These high beta or orphan stock move up more than the market and get crushed more than it as well.

But when the market starts running hard, if you have the technology to run a screener for what normally would be the best stocks to short, these stocks as a general rule end up being the best short term trades. Use a 2 period RSI for entry and exits and you can do very well. But keep in mind this really is only viable during a bear market rally or coming out of a crash.

[edit on 8-9-2009 by johnny2127]

Yeah I suppose there is more than 1 way to skin a cat (my friend's sister personally used an electric clipplers, NOT KIDDING!! lol)

But seriously, there are 1000 different ways to play every scenario, and its about what you are comfortable with

For me, its seeing the "broader" spectrum of the 20 50 200 EMA and maybe a 14,3,3 stochastic

But I prefer (or will prefer) futures only, as IMO its a MUCH MORE fair game with MUCH BETTER tax implications

GBM and other economists (like my brother) are extremely flawed in their logic! Trading on "trends" and "forecasts" is simple Calculus. The program that Goldman Sachs uses, or the one GBM is creating will probably work for intraday trading, or even short rallies and sell-offs, but they will not be accurate indicators of the economic status of the country!!

The "Stock-Market" economy is a relatively young phenomenon that economists take as gospel. The study of economy in a mathematical sense is also very young! (50 years or so!!) Before that, economists did not use Calculus, or trends, or derivatives to evaluate Market Health!!

Therefore, you guys can argue all you want, but you will all be right and wrong at the same time!!

The REAL economy exists even in the absence of an active market or any active currency!! The REAL economy is 1000's of years old, and it occurs on the streets and in our communities! At the heart of an economy is people trading labor for substinence (food and shelter)! We have never needed a stock market for that economy, and when the current Banking and Stock Market experiment/fiasco is just a page in a history book, people will still be trading their labor and intellect for food and shelter!!!

reply to post by getreadyalready


Actually I have created my own double stochastic that gauges activity as long as a 30 day period using a 30 min interval, so I think I can

But of course, everything is up for debate on these boards I suppose

Originally posted by GreenBicMan
Yeah I suppose there is more than 1 way to skin a cat (my friend's sister personally used an electric clipplers, NOT KIDDING!! lol)

But seriously, there are 1000 different ways to play every scenario, and its about what you are comfortable with

For me, its seeing the "broader" spectrum of the 20 50 200 EMA and maybe a 14,3,3 stochastic

But I prefer (or will prefer) futures only, as IMO its a MUCH MORE fair game with MUCH BETTER tax implications

Yes and I understand these strategies inside and out. But like I have said, technical analysis has its place and is very useful. But it proves nothing regarding a market being right or wrong, or being efficient or not.

Point is, with charts and technical analysis you can prove anything you want to. I just urge you to think a little further outside the box. If investing in the markets was as simple as moving averages and chart analysis, everyone would use them. Given that technical analysis is decades old, and all the various ways to 'skin the cat' as you say, it obviously isn't the end all, be all of investment tools.

My personal opinion is to use technical analysis as an overlay to a macro-based portfolio. In other words, use technical analysis to scale into and out of things, or even to determine how aggressive or safe you want to be. But technical analysis is not proof that the market is always efficient (if anything it proves the opposite), nor is it proof of a rally being within a bull market or bear market.

I agree with Greenbicman. He seems to have his facts pretty straight. I disagree that my logic is flawed. You must remember that even with the similarities to the 1930's, there are many many more similarities to the 1970's. This is a bubble that burst, it is rebounding just like the last 3 recessions have, and as long as Bernanke gets his krap together the money supply will stabilize and hopefully shrink a small bit to avoid inflation. The next recession will be caused by the same people who got foreclosed on this time that used cash for clunkers to buy a car they ALSO couldn't afford. lol. That however, could be only a couple of years away so there could be a short downturn that will panic everyone. Hopefully the stock markets and such will not panic, because that could cause this to be a W recession.

Also, the stock market is only a big indicator, nobody says it is the only control over the economy, although its crash inevitably does mean big problems and much wealth is lost. Still, while its crash does ripple, it is only 1 thing that affects the nature of our complex economy. We could have recovered at 7K if sales picked up in the retail sector and housing stabilized, and the stock market could have stayed down only proving that it isn't "gospel". It is only a reasonably reliable indicator, nothing more. The size of the number doesn’t matter, it is the relative size of the change that matters.


[edit on 8-9-2009 by memarf1]

reply to post by johnny2127


You could do that, I mean you could use an "indicator" for whatever you like really so I guess in a way there is unlimited possibilities..

But I am not saying the 20-50-200 EMA will tell you who the next president is going to be or anything lol, its just (and i know this for a fact) what big money uses to gauge market perception and its smart to play with sharp money and not square thinking

No one has to tell you the truth on TV, and I laugh when peepz' like cramer say he doesn't use TA, that is laughable, no one runs a multi hundred million dollar fund without technicals, its just not pozzible

Originally posted by GreenBicMan
reply to post by getreadyalready

 

Actually I have created my own double stochastic that gauges activity as long as a 30 day period using a 30 min interval, so I think I can

But of course, everything is up for debate on these boards I suppose

I totally believe your program will work, and will probably generate profits, just like the GS program!

I just don't believe the stock market has very much to do with the economic health of a country! The vast majority of working people are virtually unaffected by the stock market over the long term. Sure, if a giant corporation shoots up or down it affects some wages and some employment prospects, but even if all the publicly traded corporations died, the population would still have to buy the necessities somewhere.

www.thestoryofstuff.com

I always like to add that link in case somebody hasn't seen the video!

I believe our economy is saturated with expendable stuff. We make things cheaper and more disposable all the time, because we have to keep the factories running! We have created an entirely new form of inflation that has to do more with merchandise than money!

Modern Economic models have 50-100 years of working data at best, but the world's economy has been around for many millenia, so the models are extremely lacking in long-term forecasting!!

In addition, the "Information Age" has changed the world economic environment in unfathomable ways, so we are in uncharted territory! The current crisis is not so similar to the 1930's or the 1970's because neither of those events had "micro-second" trading going on, or vast amounts of 401-K moneys, or Global economic partners, or Political fodder and fallout all around the world based on local conditions!

In conclusion, this crisis is entirely new and interesting. No Previous Data is going to be useful in navigating out of this mess, and IMHO, the best approach is to let it crash and rebuild with lessons learned!

Originally posted by GreenBicMan
reply to post by johnny2127

 

You could do that, I mean you could use an "indicator" for whatever you like really so I guess in a way there is unlimited possibilities..

But I am not saying the 20-50-200 EMA will tell you who the next president is going to be or anything lol, its just (and i know this for a fact) what big money uses to gauge market perception and its smart to play with sharp money and not square thinking

No one has to tell you the truth on TV, and I laugh when peepz' like cramer say he doesn't use TA, that is laughable, no one runs a multi hundred million dollar fund without technicals, its just not pozzible

Yes I am one of those people that manages the 'big money' as you call it. We use many different tools, and we all manage things differently. I run a couple different funds, and they all use a technical overlay.

I have seen many people use pure technical analysis and their runs are bigger at times, but also when those black swan events happen that fall outside their technical analysis, their losses are catastrophically higher than someone that uses it as an overlay. These overlays kept me market neutral or short last year, so I would argue to take a prudent approach, not a greedy one.

reply to post by getreadyalready


Sure

Its funny, but everything has its own mini boom and bust

There is also a theory (which I actually belive in) with tech. being so rampant these days information is not a premium anymore, so things will NEVER GET AS BAD, but at the same time THINGS WILL NEVER BE UNDERVAULED like in the past.

So less and less deals in the marketplace because of more liquidity and participants and more speed of information to even "retail" players

But remember, the market is looking into the future and not to the present, as long as you keep that in mind its easier to understand