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Posts Tagged ‘Price Levels’

Every intervention into our life by this government creates a new and uncharted course.  Big government and an ever increasing debt load on our country.  The absolute arrogance of this government to think that they can tinker with the future of our country in this manner and that everything will be just fine.  In the good old days, you really couldn’t see through the charades.  Politics were played behind closed doors.  Today, they are going to rob you blind right in front of your face.

It is a joke to think that these politicians are going to take the numbers from the Congressional Budget Office as reality.  Once these numbers came out last week declaring that this healthcare reform bill will reduce the deficit, there was a swing in the NO votes to YES.  Something that you need to know is that these estimates are based on fairy tale assumptions and in no way reflect reality.  It is the ultimate insult to intelligence that these politicians will use the CBO numbers as validation for voting on this healthcare reform bill.  One politician referred to being “giddy” in reference to them. 

OK, I will refrain from ranting about this abduction of our future and address the ultimate question.  How will this affect the markets?  It is so tough to say.   We have never lived in a time where there is so much agenda attempting to control.  You really have to look at the price levels of the stock market, separate yourself from the news, and see how investors feel. 

We haven’t talked about price levels in a while.  Price levels are important to watch because they tell you how the market is reacting to risk.  So, the current price level on the S&P 500 to watch is 1150.  This is the line in the sand.  As long as the stock market stays above 1150, then that signifies that the markets are OK with our debt-laden world.  However, the inability for the S&P 500 to stay above that price level indicates problems on the horizon. 

Last week, the S&P 500 confidently climbed over that level.  This week will test that confidence level.  I have learned (the hard way) one simple fact.  You can read the news and look at the world around us and draw conclusions as to what should be happening in the stock market.  You can look at all of the debt accumulating and the debt that we have yet to take on (see healthcare reform) and come to the conclusion that this is not sustainable and not good for the stock market.  However, the market might or might agree with that conclusion today.  Tomorrow might be another story. However, today the markets are focusing on other things.

 So, we have reached the line in the sand, which is 1150 on the S&P 500, and will watch to see how the stock market reacts in this environment.  Today is a new day in America as we continue to go through uncharted waters.  It started a few years ago as the Government hijacked capitalism using the financial crisis as the ultimate excuse.  Today, this agenda filled Government has just taken one more huge step.  This continues to create enormous risk in the markets.  However, it will not matter until the moment that the markets wake up to reality.

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Every Friday, all across the country, bankers hold their breath.  This is the day that the FDIC chooses to show up and take over banks that are on the verge of failure.  This past Friday, FDIC employees were especially busy when they showed up at 9 different banks.   The banks had combined assets of 19.4 billion dollars. 

On Sunday one of the largest bankruptcies in corporate history occurred.  CIT who lends money to hundreds of thousands small to medium business filed for bankruptcy protection.  This could have some pretty large ripple effects.

The problem is the lack of capital to those lenders and banks who focus on the small business owner.  The Obama and Bush Administrations failed miserably in taking care of  the heartbeat of America, the small business owner.   Take that capital they are dealing out like candy and give it to those banks that service the small business owner.  Further, if you want to solve the unemployment problem in this country, help the small and medium sized businesses.  Of course, that would be the promotion of capitalism which is something none of the politicians seem to understand.

The Obama Administration stated that they might infuse money to small banks if they will agree to lend to small businesses.  The Obama Administration needs to get a backbone.  If they are going to give money to the big banks,  put stipulations on the money and stop requesting what they want the banks to do in return of receiving the bail-out money.  They are dealing all of this money out to the big banks and at the same time wanting these big banks to stop abusing credit card customers and start lending it.   Here is an idea – STOP GIVING MONEY WITHOUT STIPULATIONS!!  Go ahead and give money to the small banks without stipulations and they still will not lend it out.  It is all about survival.

You got to love bank nationalization and the march to socialism.

Levels to Watch

Let’s take a look at the price levels on the S&P 500 because some damage was done last week.   We have broken through some pretty significant price levels.  However, the BIG ones are in front of us.  The range to watch on the S&P 500 is 989 to 918.  It will be interesting to see what happens around those levels.  Yes, this is a wide range.  However, it does give you a good range in which to monitor risk if you are heavily invested in stocks.   Remember, the question is always,  “Is the rise in the stock market from March a new bull market or just a bear market rally?”  The answer to that question is crucial to the future of your invested money.

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A recent article in the Dallas Morning News states that we just don’t have anything to worry about going forward regarding a “double dip” recession.  A double dip recession is one where you go through one recession, the recession concludes, and then it comes back again.  Of course, that would mean that the stock market would come tumbling down again as well.

September 14, 2009 edition

“I can now report that it’s time to lift up your melancholy spirits and go find something else to worry about.  Double-dip recessions are very rare events.”

“Since WWII, there are really no examples-except 1980-82….”

The writer also points out that, “you would think a 50% upside prance in the stock market would be met with some measure of confidence rather than such an undercurrent of distrust.”

The biggest mistake that the media is making in the reporting of this recession is comparing it to normal recessions and normal cycles.  The writer would need to go back further than 70 years to take a look at the full length of the Great Depression to get a better comparison. No, I don’t think that we are spiraling into a depression.  I do think that in the least a double dip recession is a high probability. 

People are distrustful regardless of the rise in the stock market.  There is rampant unemployment, a foreclosure crisis, and consumers faced with mountains of debt.  That is not even considering a Congress that is trying to ruin this country through socialistic policies. 

To get a good comparison, you can’t look at post WWII recessions.  It would be a lot like comparing apples to oranges.  This is what makes this situation so dangerous.  Yes, people are distrustful.  At the same time, people are also hopeful.  They are hopeful that the worst is behind us.  If that doesn’t turn out to be the case, confidence will be destroyed and that will be the biggest problem the markets and the economy face.  Today, at least confidence is on life support after a grueling 2008. 

Levels in the Market

I haven’t covered significant levels in the stock market in a long time.  (Click here for a description of what I mean by levels.) For the S&P 500, we are starting down a few key levels that are right in front of us.  It is a range of levels between 1042 and 1062.  The ability for the stock market to get above 1062 and stay there would be a very bullish event. 

Isn’t a rise of 55% in the stock market a bullish event in itself?  Only if the bear market is over.  Thus far, the levels necessary to declare the intermediate trend change from a bear to a bull have not occurred.  It would take the S&P 500 getting over and staying over the level of 1119 for that to occur.

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Well, I took the wrong time to take a vacation. A great deal of very important things occurred last week in the stock market and investors should be extremely cautious.  This morning I will take some time to get you caught up on what is occurring with price levels as well as what I believe to be a fundamental shift in the stock market. The stock market has been in a stock market rally from the middle of March at least until June 11. Since June 11, the S&P 500 has declined -7 %.

One of the themes that I have written about since the low in the stock market in March is the overall future direction of the stock market. If you ask most people on Wall Street, they will say the worst is behind us and we have started a period of recovery. I have argued the opposite. I feel that we are in a long-term bear market that started in 2000 and could last as long as 18 to 20 years (based on history).  Concerning out current situation, my analysis would suggest we have been in a bear market rally. This is a period of time where the stock market stops declining and starts what looks like a period of prosperity and recovery for investors.

These are mean periods of time for investors because they fool the vast majority of people into believing that the worst is behind us. When you look at how far up the stock market went in a small amount of time, it certainly would appear that the worst is behind us. At the same time, it also looks just like a typical bear market rally and not the start of a period of recovery.

Since the March low in the stock market, the question has been how long and how far the stock market will go up. It is a little too early to declare that the stock market rally is over. However, the evidence is building. The problems are becoming much too loud to ignore. So, let’s start with the evidence. We always want to look at price levels of the stock market. Price levels are determined by where the stock market closes at the end of each day. They can tell us a great deal about the level of risk that we are facing.

If we manage to stay above certain price levels, then stock market investors should feel comfortable with taking risk by investing in stocks. However, if the market closes below certain price levels, then the probability increases that stock investors will lose substantial amounts of money. On June 11th, the S&P 500 reached its highest price level since the March low. That closing price level for June 11th was 944 on the S&P 500.

As of last Friday, we were at a price level of 879. The price level of 878 is the first level of risk for the stock market. Last week the S&P 500 fell below that level but has not closed below that level. Remember that the closing level is the most important one to watch. Once that level is broken, the next danger zone lies between 814 and 779. If you are heavily invested in stock, you do not want to see the S&P 500 fall below 779. In that event, I would think that the next price level down could be as low as 719 all the way down to 666.

The price level of 666 is extremely important because that was the March low of the stock market. In the event that would happen, that would be a considerable low and loss to stock market investors. For now, let’s not get ahead of ourselves. Keep in mind that investing in stocks is all about monitoring your risk. One of the best ways to do so is by monitoring price levels.

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Forget about what the Government, Wall Street, or the economists say about the probabilities for the stock market and the economy.  Instead, look at what the people in the day to day trenches are doing with their money.  A key indicator is the actions of the corporate insiders and whether they are buying or selling their company stock.  Think about it for a moment.  If the corporate insiders, the individuals who are seeing the actual numbers and projections for the future, are selling their company stock, then there is obviously something that concerns them. 

According to Wall Street, this is intended to be the buying opportunity of a lifetime.  If so, then why would you sell?  Let’s take a look at the latest statistics that show whether corporate insiders are positive or negative about the future.

In the last few weeks, corporate insiders sold over $335 million in stock versus the buying of only $12 million  (www.financialarmageddon.com).  This begs another question. Is it more concerning that insiders are selling or that insiders are just not buying?

The reality is that the economy is not in good shape and the fundamentals do not suggest that we are remotely close to being out of the woods.  Let’s take a look at a few other variables.

Unemployment

I wrote last Friday about the huge discrepancy in the unemployment report that the Government gives and the unemployment problem that is really facing America.  However, the numbers get even more distorted when you consider other variables.  The temporary workers distort those numbers.  This is the classification of workers who are jumping from temp job to temp job just to make ends meet.  They will count as employed.  The latest shadowstats.com repoprt shows the unemployment number around 20.5%.  That is a far cry from the reported 9.4% unemployment and suggests that a huge headwind faces this economy.

Interest rates

The Government is going to have a tough time getting this economy jump-started if interest rates continue to increase.  This is going to be a key risk factor for the stock market.  This week the Government will be holding another significant bond auction in order to raise money to fund our enormous spending appetite and deficits.  Buyers are demanding higher rates of interest for the bonds thus increasing the interest rates of the government bond markets.  Interest rates were up again last week.  Of course, this affects the interest rates of the consumer markets.  The last thing that a debt crisis needs is rising interest rates.

Price Levels

Let’s not forget the price levels that we watch to determine if the market is making headway and still a good investment or if the risk level has become too high.  The price level of 943 is a huge price level that the S&P 500 has had a tough time getting over.  The longer that the S&P 500 stays below that price level, the larger the chance that the bear market declines will return.  Thus far, this has been a real challenge for the market.

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As we have talked many times in the past, one of the most important pieces of evidence that you can look at is price levels.  As a review, price levels act as road markers on the journey of investing.  They tell you if you are on track versus going the wrong way.  The price levels were telling investors back in December 2007 that if they were invested in the stock market they were heading the wrong way.  As a result (admittedly looking back), those road markers were very accurate in giving out a warning.

Price levels are nothing more than the price of the S&P 500 at the end of each market day.  Yesterday, when the stock market closed for trading during the day, the ending price level was 942.  So, if you are following the road markers and on the right track, then your investment accounts should be doing pretty good.  The opposite is true. If followed, these road markers can tell you when it makes sense to get off of the investment road completely.

Well, we have traveled up to a very important road marker. It is a huge direction changer.  If this road marker is successfully passed and if this road marker stays behind us, then being equity invested will still make sense.  In the event that we cannot pass up this road marker for good and stay under it, there is a good chance we would then be going in the wrong direction.  That road marker first starts with the S&P 500 closing and staying above the price level of 943.82. 

What happens here will speak volumes about what we are up against.  I will be posting more this week as this is something that warrants attention.

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Since we changed the daily stock market outlook to a stock market alert format, there really hasn’t been much to “alert” you about concerning the markets.  So, I thought I would just start off this Monday with a quick update.  This should be a relatively quiet week with very little breaking economic reports being released.  Since May 8, the S&P 500 has dropped about 50 points.  From the standpoint of what the S&P 500 has been doing over the past 9 weeks, that really wasn’t that big of a deal.  I want to circle back around to the one question that every investor should have in the forefront of their minds.

Is this the start of a new bull market or just a bear market rally that precedes another bear market route?   The answer to that question would determine every decision you make concerning your investments.  The best way to start answering that question is by looking at price levels.  If you are new to this market commentary, price levels are very easy to understand.  First, I always focus just on the S&P 500 and we always look at what price level the S&P 500 closes at each market day.  The S&P 500 closed on Friday at a price level of 882. 

Price levels are road markers that tell us where we are on the journey of investing.  If we successfully pass the right price levels, then we know we are on our way to our destination.  However, if we start passing road markers or price levels going backwards (losing money), we need to assess if we are lost and off of the correct road.  So, we look at the price levels that represent caution, a positive outlook for our journey, or a negative outlook. If our road markers are showing that we are on a good road, then we stay the course.  If the road markers (price levels) are starting to show yellow signs or caution, then that means we might need to change the course of our journey.  We do that simply by changing our investments.  If the road markers or price levels show we are lost, we want to change directions.

So, the road marker or price level that would warrant caution for investors is anything below 875.  Last week, the decline did not go that far.  A positive for the stock market would be anything over the price level of 950.  So, let’s see where a week of mild economic reports takes us.

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