Stock Market

[Jim Pickering]

I had done a fantastic job of avoiding the Potus Place until this morning. There is nothing good on the main forum except the Golden Bitches thread and for me that is worse then politics. Since I did not have anything civil to add there I clicked on Potus Place and right on top was this Stock Market thread, a subject near and dear to my heart. Maybe I can play here and be a bit more civil.

Wars are generally good for our economy, not that I advocate starting one for the economy's sake.

I will beg to differ Mr. Booty; wars are never good for the economy. Maybe from the point of view that wars reduce the workforce wars may have a positive effect on unemployment rates, but otherwise not so. Well, one could argue that in the case of our, make that Mr. Bush’s and Mr. Chaney’s, current war the stock holders of Halliburton faired nicely. However, prior to this current war the benefits of reconstruction accrued of the country destroyed and never exceeded the economic damage.

One can argue that government spending to purchase the weapons of war can stimulate the economy but it is stimulating a manufacturing sector that one would hope is not sustainable. In any case wars generate excess government spending how can one be critical of a government spending stimulus package for infrastructure and then applaud government spending for a war. Both do the same thing except generating jobs for making weapons of war is by definition depressing. IF the government is to spend in excess of tax revenues it is better IMHO to spend those funds where they will benefit the economy in total as with infrastructure as opposed to a narrow segment of economy, defense contractors.

On the more negative side wars are by definition uncertain. The outcome is not always a given nor is the duration, therefore, planning and financing of wars are difficult and disruptive to stable economic growth. If you correlate wars with the stock market you will clearly see that wars are a big downer for the stock market.

Bottom line, the argument that wars are good for the economy is difficult to support with facts and that wars are good for the stock market simply cannot be supported with facts.

[Jim Pickering]

I had someone at work ask me what they should do about their 401k which is worth half of what it was a year ago. I told them that I got out of the market in 01 but, that if I still owned mutual funds, I would sell them today.

Booty, I think you are giving bad advice - there has been considerable money made since 2001 & you can't share in the inflationary trends if you have no inflationary sensitive investments. Right now the shakeout is from those who only thought markets go up.

IMHO opinion you are both are giving bad advice in that your timing is no correct. Read on. My applogy for the length.

Dow 7,365.66
Ok...I know this is a dumb question...the Dow can only go to ZERO...Right?

Right the DJIA cannot go below zero, but you needn’t worry. I would not expect the DJIA to get to zero; hopefully the bottom will be closer to 2000, but 400 is not outside the realm of possibilities.

I wish I had the time to present some facts as respects excess spending and economic policy or lack thereof for each administration over the past quarter century. Apparently some of you have not been paying attention or are so polarized by your ideology that you ignore information that does not support it. However, I do not have the time and the historical facts are a Google search away for anyone who is seriously interested.

How and why the stock market, the DJIA, has fallen from 14,093 to the intraday low of 7255 hit shortly after 1:00 PM Friday is important only for those who are still young and would like to avoid riding the stock market down during the next major decline 30-40 years from now. The more pertinent question for the old farts is where the stock market is likely to go from here?

Our friend Marvin tells us that he is buying stocks on the dips, a stock investment strategy that has served long term investors well for at least 25 years. FWIW I will share a different point of view. Please understand that I am not a stock or investment professional of any type. I am a simple citizen who worked hard in years past, lived below my means and saved for the rainy day that is now here. We, my wife and I, can get by from here without making a lot more money, however, we cannot afford to loose any. To avoid loosing I have studied and watched the stock market closely at times and sat back at others. Lately I am watching and will share what I am looking for the stock market to do from here.

Based on past posts, Marvin selects individual stocks based on the fundamentals of the companies. I take a different approach. I could care less about fundamentals; I study the technical chart patterns of stocks and more importantly the stock indexes. There are volumes available on technical analysis so way too much to try to explain it here, except to say that I subscribe to a theory of chart analysis called Elliot Waves ro determine the primary trend of the stock market. The Elliot Wave theory is based on the premise that liquid markets move according to human psychology and that human nature never changes. In fact, human psychology, herd mentality, is predictable.

Here is an Elliot Wave analysis of where the stock market is going from here.

Friday the stock market as measured by the DJIA made a new low for this leg down hitting 7255 shortly after one PM. The market needed to make this new low below the previous low of 7449 established Nov 21, 2008 to complete the last wave down of the most near term pattern. The stock index charts would look better if the DJIA continued to decline to near 6500 but for now the minimum decline that allows for calling the near term pattern complete has been achieved. So we could see a rally next week of a couple hundred points or more down side action for a couple more weeks before that rally starts. Whether the rally started late last Friday or will start from a lower level within the next couple weeks the DJIA is not likely to rally above the 8,000 level. This brief rally will be a fourth wave of the next higher pattern and once that is complete the DJIA will turn down again in the fifth and final leg of this pattern. If the near term pattern was completed at 7255 on Friday then the last leg down of the next higher pattern will take the market to the 6500+/- level. If the near term leg did not complete Friday and carries lower to near 6500 before the brief rally then the final leg of the next higher pattern will carry to some point below where the rally statted in order to establish a new low required to call the pattern complete per the rules of Elliot Wave analysis.

If you are still reading, I assume you are keeping up and understand. But to review the last leg of the most near term patter either completed last Friday or will complete shortly. The patter of the next higher degree is also nearing completion with a counter trend up leg and the final down leg to be complete. Now the good news is that once these two patterns are complete it appears that the pattern that started with the market top of 14,093 in 2007 is also complete and therefore we should see a major bear market rally in the stock market. The market will not go straight up. Keep in mind that the major trend is down so the coming rally will be counter trend move which typically takes the patter of three waves, up-down-up. It is much too early to attempt to predict the timing or magnitude of each of the three waves, but counter trend rallies typically retrace between 38% and 62% of the preceding impulse move which in this case is the decline from 14,000 to whatever low is established and that is anticipated to be around 6500. You can do the arithmetic but this rally could take the DJIA back above 9,000 and possibly as high as 11,000. I cannot wait to see how those on the far right deal with this. Will Obama get any credit or will it be the legacy of George Bush come back to save the economy? Actually it would not matter who is in the White House.

For those salivating for a one term presidency for Obama there is still hope. After the above mentioned stock market rally that takes the DJIA back to the 10,000 area has run its course Katy bar the door. There is not bottom the next time down. One could argue that there is some minor chart support at 4000 in the DJIA but that is a stretch. The first meaningful support is at 2,000 which was the bottom of the 1987 mini crash.

The plot thickens for those who subscribe to the Dow Theory for predicting market direction. The new low in the DJIA on Friday confirmed a new low established a couple weeks back in the Dow Jones Transportation Average. According to the Dow Theory this indicated the market trend is down and constitutes a sell signal. So will the Dow Theory or the Elliot Wave theory correct?

My guess is that if Mr. Booty got out stocks in 2001 he is ahead of those who rode the market up and back down from there. However, if I had ridden the market down, as tough as it would be I would wait for the big rally back up and start getting out above 9,000. But that is the problem that most have with investing in stocks. How many would sell with the market going up and looking at a 50% gain?

Should I really hit the submit button? What the heck.

[K G]

Thanks for taking the time to post that, Jim. VERY interesting information and theoretical analysis.

kg

[Uncle Bill]

Jim Pickering wrote:

I am a simple citizen who worked hard in years past, lived below my means and saved for the rainy day that is now here. We, my wife and I, can get by from here without making a lot more money, however, we cannot afford to loose any.

Since you make no mention of it, do you consider the so-called 'stimulus' package a plus or minus?

Are you having doubts the present administration is solving the financial problems so you won't 'loose any'?

Have you contemplated your losses when the result of the printing presses rolling out the trillions or so $$$$ to provide for all the democrat pork in this bill, bring about an inflationary spiral that will make Carter's look like a piker.

Hope you have a room full of Maple Leafs and Kuggerands, or beaucoups pre-65 silver coins.

UB

[thunderdan]

Jim,

Thanks for taking the time to post your response. It was one of the best explained I have read. I am in agreement that we are going to see those levels, it is a matter of time. I would not mind a short uptick a few hundred points to make a couple of real quick trades. I actually sidelined all of my equities into cash and plan to get back in at those 6500 levels.

For me I am going into Eagles at the pullback that I think we will see in Gold. I think EAGLES are the easiest to move if needed. I am thinking that the Dow will short term rise a few hundred points, Gold will drop back into the low to mid 900's. At least that is my hope, get into some physical gold, make a few quick bucks on the rise of the market, then wait it out.

Do you think we will see a dow to gold ratio of 3 or 4 to 1?

[thunderdan]

Looks like the futures are up by 80 points.

[txbadger]

Here's a look at the Market, as measured by the SPX:



A simple way to look at the market is with a monthly chart with a 12 ma.... it'll keep one out of trouble, if only a long side player.

Imho, the market won't make a meaningfull move + until the quarterly chart turns up.

As of this post dji is -73 and SPX -25

[Marvin S]

Our friend Marvin tells us that he is buying stocks on the dips, a stock investment strategy that has served long term investors well for at least 25 years. FWIW I will share a different point of view. Please understand that I am not a stock or investment professional of any type. I am a simple citizen who worked hard in years past, lived below my means and saved for the rainy day that is now here.

If you haven't read the "Millionaire Next Door", you should - it describes a lot of us in the terms you state above.

Based on past posts, Marvin selects individual stocks based on the fundamentals of the companies. I take a different approach. I could care less about fundamentals; I study the technical chart patterns of stocks and more importantly the stock indexes. There are volumes available on technical analysis so way too much to try to explain it here, except to say that I subscribe to a theory of chart analysis called Elliot Waves ro determine the primary trend of the stock market. The Elliot Wave theory is based on the premise that liquid markets move according to human psychology and that human nature never changes. In fact, human psychology, herd mentality, is predictable.

Do you know of any mutual funds that use Elliott Wave's in their evaluation of a stock? This sounds an a lot like the Charles (the market is always too high) Allmon's theory of not investing money he was given to invest.

As for my selection methods, it's a little more complicated than you describe, for example, I avoid industries that have shown they are difficult to follow through cycles & generally don't make money for their investors. I am trying to put it down on paper for my investing sons to follow & find that hard to do. The generalities are not hard, the specifics are hard to put into words. How do you explain the pschycology of taking a loss & why you need to get on with the task at hand?

So will the Dow Theory or the Elliot Wave theory correct?

The person with the answer to that question will make a lot of money.

My guess is that if Mr. Booty got out stocks in 2001 he is ahead of those who rode the market up and back down from there. However, if I had ridden the market down, as tough as it would be I would wait for the big rally back up and start getting out above 9,000. But that is the problem that most have with investing in stocks. How many would sell with the market going up and looking at a 50% gain?

If all categories & stocks moved in lock step it would be like buying bonds, what you see is what you get - but stocks are a little more complicated. As for getting out in 2001, there has been serious money made since that time by astute management of assets. As for selling a 50% gain, I would never say never, but stocks should be purchased with potential gains greater than 50% in mind, IMO.

[Richard Halstead]

Marvin can you quit using the small print? It's difficult to read your mix of font sizes.

[Patrick Johndrow]

Dow 7,365.66


Ok...I know this is a dumb question...the Dow can only go to ZERO...Right?

Dow 7,114.77 -250.89 (-3.41% )


Obama is stimulating something...but it aint growth.