All the Fed sycophants clamoring for air time last week had us shaking our heads; especially with how the markets reacted to the on-again-off-again tapering, tightening, continuing, coming soon, will take five years, interest rate target or not… sound-bites.
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Quote worth Quoting Again |
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“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries”…Winston Churchill “And I’m proud to be an American, where at least I know I’m free. And I won’t forget the men who died, who gave that right to me.”…Lee Greenwood |
I know this is not happening, but it sure seems like one of two things are going on:
- The Fed has painted itself into a corner and has no clue about how or when they can get out of artificially manipulating interest rates and the stock market, and as such, proffers one lame explanation after another with regard to what the Fed is going to do and when. My guess is, what they really want to say is, “It is entirely possible that we have really screwed up and we can’t find an exit strategy that doesn’t end badly for the economy and the stock market!”… but, of course, they can’t say that (or won’t), so they opt of the second strategy (see #2).
- Each Fed message that is supposed to create a sense of calm and control is having exactly the opposite effect. Therefore, they send out spokesman after spokesman to try and quell the adverse reaction to each preceding message. It is only because the issues are so massively significant that this strategy isn’t perceived to be aSaturday Night Live skit. The Fed may know exactly what they are doing, but from a spectator’s point of view, it looks more like a saying we have way out here in Texas… “All hat and no cattle!”.
In other words, they have created a nightmare situation (financially) and have no idea how to resolve it. So, they have to talk a lot more than they can walk this situation back to normalcy. We’ll see if I’m right on this, of course, but it will take a long time to know one way or the other… that is… as long as the result is not a catastrophic collapse.
This Week’s Bull/Bear Report…
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The Bull-Bear sentiment has toned down significantly from the previous week with only a slight nod to the Bulls. The Bull-to-Bear ratio is only 1.3-to-1. The Turner CrossOver Oscillator continues to give a solid edge to the Bears. The trend of the red line (total number of new Bearish indicators) is moving higher indicating a growing level of Bearishness, while at the same time the black line (combination of Bearish and Bullish signals) is trending strongly lower; an even stronger Bearish formation. The S&P 500 continues to look like it has begun a Bearish trend. The time-cycle trend probability forecasts continue to show the trend probability for the broad market is near-term Bearish. Now is not the time to try to pick a market bottom. Being more short than long appears to be the more prudent course of action for now. |
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Turner Bull/Bear Forecast The Turner Bull/Bear Forecast™ provides a one-week directional forecast on the market, with [-5] being the most Bearish and a [+5] being the most Bullish. This is predicated on the ratio of number of new Buy Signals to the number of new Short Sell Signals for the previous week. The assumption is investors are becoming more Bullish the more lopsided the ratio becomes in favor of new Buy Signals; and, the converse is true; the more lopsided the ratio becomes in favor of new Short Sell Signals, the more Bearish investor sentiment. |
The Turner CrossOver Oscillator™ provides an indication of the over-bought or over-sold condition of the market. The red line (New Short Sell Signals) shows a technical direction and strength (or lack thereof) of investors to push stock prices lower, triggering new Short Sell Signals. The higher the Short Sell Signals line, the more Bearish the market. The black line (Composite of both Short Sell and Long Buy Signals) is the combined impact of both the new Short Sell Signals and the new Buy Signals and is an indication of the degree of oversold or overbought condition of the market. Buying opportunities exist when the Composite of Signals line is moving higher. The higher this line moves, the more Bullish the market. Market bottoms are represented by a change in direction of the Composite of Signals line from moving lower to moving higher. Market corrections become much more likely when the Composite of Signals line crosses the Short Sell Signals line from below the Short Sell Signals line to above the Short Sell Signals line. The market is represented by the green shaded area. |
My Take…
The four major index trend probability forecasts indicate the market is more likely to move lower in the near term than higher. Take a look at the Trend Probability Forecast chart, below right.
As you can see the forecast for trend probability is Bearish for the month of July.
By the way… When it comes to forecasting the market, or any stock, certainly one of the most important forecast components would be trend. There are systems and technical methodologies that attempt to extrapolate the future trends of an equity with some very limited success with regard to long-term performance. Though many of these traditional technical systems have widespread usage, you will note that rarely has anyone published a true, back-tested study showing actual forecast results. Technical chart patterns, Fibonacci’s, Candle-Sticks, etc. have a great deal of popularity based on urban legends and anecdotal observations. Not that these traditional forecasting models shouldn’t be used. Quite the contrary; I think they can be quite useful if you have a strong feel for these models and have found them to be useful to you. Many investors claim that they experience positive returns, but academic appraisals often find that these “traditional technical analysis systems” have little predictive power according to Wikipedia.
CycleProphet, on the other hand, has developed a mathematical forecasting program that does an amazing job of forecasting the probability of future trend bullishness or trend bearishness. The accuracy, from hundreds of thousands of back tests, has shown the ability of this mathematical model have a predictive accuracy from the low 60% to the high 80% for the first trend.
Our computer programs seek and finds historical sinusoidal waves of up/down trends that exist in the historical data. These waves have a bottom and a top that repeat over and over in exactly the same number of days throughout all of an equity’s pricing history. These are not “pricing waves”. They are, rather, “trend waves”. Each wave repeats, over time, with exactly the same number of days between each bottom and each top.
Once these “High Probability” trend waves are identified, our software produces a forecast where it displays what days in the future are more likely to see an equity trending higher or lower. These trends can last from a few days to several weeks. A higher probability bullish trend is shaded green for the expected duration of the trend. A higher probability bearish trend is shaded red for the expected duration of the trend. See color-coded chart, above.
Moving on…
Gold looks to be a better buy in late July or early August, but silver could be seeing its bottom in mid-July. Oil, on the other hand, looks choppy at best and perhaps a good opportunity to take a short bias.
Both the EURO and the Dollar look weak, but the EURO looks far weaker than the Dollar.
A very Bearish trend for Brazil looks to continue for the foreseeable future, with Europe looking similarly weak.
There is a lot more red than green in the probability forecasts for all the major Sectors.
I know a lot of the perma-Bulls say this market has legs to the upside. I am not so sure. I plan to add to my short biason Monday.
Closing Thoughts…
When I look at the world of investors, I see the following ‘types’ (these are generalities, mind you):
- There is the person who is intrigued by the stock market and wants to become proficient at trading so that they can prove to themselves that they can actually make money (they hope, a LOT of money) by trading. For this group, they look at the whole experience as an educational journey. These good folk often lose far more than they make, but they chalk it up to the cost of education and keep ‘playing’ in the market. That’s sort of why I play poker… I enjoy the game. I am intrigued by the strategies. I actually think that one of these days, I’m going to be good enough to compete for serious money. But, I do not depend on poker for any income, nor any retirement, But, at the same time, I am very serious about the game, the strategies, the math and the ability to win more than I lose… not unlike the stock market traders of this group.
- The second group are a LOT more serious about their trading. This group knows they do not have enough money for retirement and also know they cannot amass enough retirement income through their current career path to meet their retirement goals. These folk tend to be a bit more (understated) panicked about their trades. They tend to be far more emotional about their trades. They may realize that they are not knowledgeable enough to trade on their own and as such, look for mentors and trading gurus. Some in this group are neophytes with a very small nest egg. Others can be very accomplished investors and traders where they have a solid plan for increasing their nest egg to the point that it will meet the bulk of their retirement goals.
- The third group is comprised of individuals who are considered “high net worth investors”. These fortunate folk have their retirement covered and know that they have financially underwritten their lifestyle for the rest of their lives. However, individuals in this group often have a ‘pot’ of money that they want to take higher risk with and hopefully generate some serious “additional” capital. These folk are not generally big risk takers but they are willing to incur greater risk and not panic if the investments/trades do not work out to be profitable. They do not suffer fools and will not abide poor managers or poor strategies.
I realize that when I write these weekly missives, my audience runs the gamut of the above ‘types’ of investors/traders. I often write and rewrite large segments of my letter after reading it through the eyes of investors who have very different needs and stations in life. I want the person who really needs to be successful at trading, as well as the person who would like to have an additional double-digit income stream, to get important ideas and strategies from these letters.
I do try to give you a perspective of the markets that you will not get anywhere else. As such, I try to bring some levity into my writings along with some very serious commentary that will, hopefully, make you think outside the box and help you achieve your financial goals with a bit less risk and a bit more insight into the right play at the right time.
I also like to give you my personal thinking about how to trade for the upcoming week. Regardless of which group you identify with more, if you are in this market, I want to give you some actionable ideas that can, hopefully, increase your winning percentage.
I hope you have a great Fourth of July this week. I suspect the markets will be more than a bit choppy with the Fourth coming on Thursday. Be very careful about buying into the dips. I am more interested in selling into rallies.
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