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Issue #8, 2010 – Market in uptrend A free newsletter from Eirik W. Moe Send an email to email@example.com if you would like to be added to the distribution list. We are looking at the following in today’s newsletter: • • • • • We have just entered a new uptrend, but you should continue to be cautious Inflation anyone? End of fiscal stimuli proves that the economy looks weak John Paulson – From hero to villain in a matter of a few years? And as always my overarching views (with minor editing)
We have just entered a new uptrend, but you should continue to be cautious All my indicators indicated that the market turned to an uptrend on Friday July 23rd. Many of the major US indexes have also broken through both their 50 and 200 day averages and also above the upper boundary for the downward sloping trend channel. I am not fully convinced about the market’s ability to sustain the uptrend going forward and would have to see much more strength to be more comfortable with the new uptrend. Even with the market in a new uptrend and close to or having broken through near term resistance levels make sure that you are on alert. We are now going through extraordinary times. The volatility that we have seen in the market lately is a sign that the market players experience a large degree of uncertainty. It is furthermore a sign of a very unhealthy market were you need to be extraordinary cautious with your investments. One out of every three trading days since April 26th has seen either panic buying or panic selling (days where 90% or more of all stocks go either up or down respectively). This is truly extraordinary and a sign of a very unhealthy market. If the market was consistently bearish it would suggest that an important bottom was approaching, like we saw in March last year. If the market was consistently bullish it would also suggest that we most likely would see a multi-‐month bull market. But in the case were both conditions exist at the same time, like now, it probably means that stocks are setting up for dive. The major dive that I am awaiting will most likely not happen without a signal for a new downtrend has been generated. As the bear market progresses, try to keep in mind the intensity of the few stock market surges that we have seen lately because it should be seen and felt many times over the coming years of bear market. Some of the strongest up days in a bear-‐market bounce occur near the end of the rally. Inflation anyone? I also wanted to show you another chart that I think helps explain what is going on in terms of the inflation picture. Typically when the Federal Reserve is stimulating the economy, it pumps money into the banking system and then banks lend out more than they receive; this has a multiplying effect. However, because many banks are in danger of failing, the government is requiring them to increase their reserves, and many banks view the activity of loaning money to businesses and consumers as being too risky now. Thus, they are not lending out the new money they have been getting from the Fed. The graph below, from the St. Louis Federal Reserve shows this happening with the M-‐1 money multiplier. When banks lend less money, the multiplier goes below 1.
auto sales looked great. but I have a feeling that Paulson might be proven wrong in his wrong bets and that he will go into the history books as the investor who had one “lucky” shot. Do your own analysis. And if they do that. estate tax rate rises to 55%. to take advantage of lower tax rates now. Hard 2 . These are my current main thoughts on our outlook: -‐ We are (have been) in a bear market rally. listen to what is said and done out there. I like to look to what the proven experts in the market say and do. My point is that you should always be careful to whose advice you listen to even if they have become sages through their previous investment acumen. After the cash for clunkers stimuli was over. is sticking to his bullish stance after losing almost 9% in the first half. obviously. what they will do is they will shift income into this year. and that the recovery is not sustainable. but always be very critical to what you hear. but it won’t take a lot to bring on the slide which will be even more intense than what the May-‐early July preamble. But the current numbers are fine. This proves my statements that the economy is not improving without artificial help. collective sigh of relief may be needed before the downtrend resumes.000 expired in late April. car sales fell immediately 35%. And the same thing with the housing starts -‐ when they still had the USD 8. I have no clue when the market will finally top out. highest federal dividend tax rate rises to 39. A broader. But I would say it is likely to top out by the latest by end 2010.6% in 2011. which we could find in the period we are entering now. who gained infamy by predicting the United States’ housing bust. That's what you'd expect when people are accelerating income in the present. Maybe it happens with this correction.6%. Also home sales went straight down after home buying incentive of USD 8. End of fiscal stimuli proves that the economy looks weak Highest federal income tax rate rises to 39. John Paulson – From hero to villain in a matter of a few years? At this point. John Paulson. but the likelihood increases for every correction we enter. maybe not. capital gains tax rate rises to 20%. the peaking process has gone on so long that people who are normally and successfully suspicious find themselves in angling after bargains. A number of “savvy” hedge fund managers and market luminaries are jumping in to capitalize on the decline from the April highs.000 tax credit. Just before they eliminated the cash-‐for-‐clunkers program. And if people know tax rates are going up next year. that will make this year look a lot better than it otherwise should and make next year look a lot worse.
or anyone you know. Be the master of your own life. -‐ Expect the USD to strengthen against almost all other currencies in the medium-‐term. so this is a market on which investors are now fixated. now gold is the only market left on which people can express full optimism. would like to be added to the distribution list. This turn will most likely correspond to the turn in stocks. Please also let me know if you. Make up your own mind of what you believe and act accordingly. People should though own physical gold and I would continue to buy a little physical gold each month. then it was stocks. happy investing. The USD will strengthen as people want to minimize risk exposure. real estate). -‐ Bearish on Gold for the medium term. No hard feelings : ) Feel free to forward this email to anyone who you think might enjoy it. Because of all this liquidity the market could grind on for a little longer. most major commodities. First it was real estate that would never go down. 2010 – Call: Market in uptrend -‐ May 5. You want to own gold for the long-‐term. Also Chinese real estate looks very expensive. Eirik W. 2010 – Call: Market in correction -‐ June 3. non-‐USD currencies. Hope you could enjoy that for a change. -‐ Liquidity is what is driving the market. As always. Dates for previous emails that I have sent out (all can be made available upon request): -‐ June 30. 2010 – Call: Market in correction 3 . enjoy the summer. precious metals. then it was commodities. and almost all markets and asset classes have been highly correlated. I think the continuation of the bear market will take us well below the lows seen in March 2009! -‐ Commercial real estate looks very bad and the Chinese stock market will probably correct more than the US in an eventual continued bear market. and spread some love. Don’t listen uncritically to other people’s advice. The USD is however most likely to fall in the longer term together with most other fiat-‐currencies. Jim Rogers and Marc Faber are both “a 100% certain that we are entering hyperinflation”. I still believe we will see deflation first as credit and debt is reduced. Until then. -‐ In short I am bearish on all typical long markets (equities. The only major market that has continued to create substantial new tops since 2008 is gold. no decoupling of emerging markets. Moe I send out these email alerts only when there are indications of larger trend shifts in the markets to try to keep them to a minimum. please let me know if you would like to be removed from the distribution list. It is therefore very hard to diversify away from any risk at the current moment. Long-‐term I can potentially see that we could enter hyper-‐inflation. -‐ Everybody seems to believe that we will see inflation. It was a short newsletter this time. Just a reminder: I don’t give investment advice. 2010 – Call: Market in correction -‐ June 16.to say how much the record liquidity provided by governments around the world could continue to fuel a potential prolonged rally. I will however start working on another one right away and I have a feeling that it will be a longer one. You can’t sue me to get your money back or to make me come and snuggle with you to make you feel better. Both extremely successful investors over many years and their views should be reviewed with care. In other words. 2010 – Call: Market in uptrend -‐ June 9. If you choose to invest based on what you read in these newsletters you are on your own.
It is a mix of information written by myself. 2010 – Call: Market in correction November 9. 2009 – Call: Market in correction December 3. 2009 (attached below) –Call: Market in uptrend August 18. 2009 – Call: Market in correction August 24. and Mish Shedlock to just mention a few.-‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ April 26. 2009 – Call: Market in uptrend October 28. Nasdaq is testing 200 day line) March 16. Investor’s Business Daily. Elliott Wave. 2010 – Call: Market in uptrend January 25. Marc Faber. Development in S&P 500 (closing prices) with trend of market based on dates of newsletter Red line indicates date of newsletter confirming correction/downtrend Blue line indicates date of newsletter confirming uptrend 4 . back in correction January 14. 2008 – Call: Market in uptrend September 5. John Mauldin. Jim Rogers. 2009 – Uptrend (beware. 2008 – Call: Market in correction All of the above represents my own views. Robert McHugh Main Line Investors. 2008 – Call: Market in correction August 2. taken/copied from various leading newsletters. 2009 (attached below) – Call: Market in correction June 2. 2009 –Call: Market in new uptrend February 18. 2009 – Call: End of rally attempt. Some sources that can be recommended include: Agora Financial. equity analysts and news organization. 2009 – Uptrend (Nasdaq broke through 200 day line in higher volume) May 5. journals. 2008 – Call: Market in uptrend May 28.
or to participate in any particular trading or investment strategy. decisive. Follow-‐through day: A follow-‐through day is a day where one of the indices (Dow. Disclaimer: First of all. As buying pressure takes over. It is a shame. It indicates big-‐ money selling. and has become a staple of almost all technicians' cadre of indicators. As selling pressure increases. So with sadness in my mind and tears in my eyes. The content in this newsletter is provided as general information only and should not be taken as investment advice. Share price typically goes up on increased volume and down on lower volume. The distribution day count will be reduced by two factors: Time and price appreciation of the index.0 typically shows that there is even pressure between buying and selling. here goes. TRIN: The TRIN (TRading INdex) was developed by technician Richard Arms. High ROE. Top-‐rated stocks/fundamentally strong stocks: Companies that have the best growth prospects both in terms of sales and earnings. A distribution day is eliminated after typically 5 weeks and after a run-‐up of the index of typically 10% above the distribution day. S&P 500 or Nasdaq Composite) closes up 1% or more for the day. The most powerful follow-‐throughs usually occur on the fourth to seventh days of the rally. All content shall not be construed as a recommendation to buy or sell any security or financial instrument. the TRIN drops. the TRIN increases. counting day one as the first up day after a bottom has been reached. and will continue to stimulate. Simply enough. I am shocked to live in a world where we even need to add disclaimers to opinions that we write. Therefore. one usually sees very high readings near market lows and extended bouts of low readings near market peaks. A follow-‐through day should give the feeling of an explosive rally that is strong. The ideas expressed on this site are 5 . Glossary Distribution day: A distribution day involves the significant decline of a major index in increased volume. Increased ownership by the best performing mutual funds. Usually have a new product or something else that is new about the company that has stimulated. the earnings-‐ and sales growth. is the pattern that will often end an uptrend. the index is calculated as follows: (advancing issues / declining issues) / (up volume / down volume) A reading of 1. and conclusive. Three to five distribution days over a few weeks. The market's volume for the day should be above its average daily volume in addition to always being higher than the prior day's trading. both quarterly and yearly over the last three years. Follow-‐throughs after the tenth day may indicate a positive but somewhat weaker new uptrend. An initial “follow-‐through” can occur on any one of the indices and is usually followed a few days later on another index. Best relative stock price performance. along with poor action among leading stocks. not begrudging and on the fence.
6 . The author may or may not have a position in any company. Any action that you take as a result of information or analysis in this newsletter is ultimately your responsibility.solely the opinions of the author. Consult your investment adviser before making any investment decisions.
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