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Sunday, January 23, 2011

Doc Barter Market Musings

Blogosphere Into Top Guessing Again       


Browsing around financial blogs can be confusing and irritating for the average investor. Since October 2010 there were a number of blogs starting to guess a top. Lately this number has increased. Head line words like “Major Top” appeared.

I was in awe and asked myself “what is the definition of a major top” ?

Being a simple old fart investor, I was looking for the definition myself
Is it

A)
the market top called in October 2010 and SPX declined from intraday high 1227 on 8th of November to 1174 intraday low o 30th November ?
Sadly for the market top timers, the SPX started to rally to new highs

B)
the market top  and coming collapse in May & June 2010 with targets named in 800 area of SPX and an autumn 2010 low.
Sadly for the market top timers, this did not happen at all.

C)
the start of a new bear market


Are those headlines of Major Top calling perhaps nothing else then attention seeking articles. Scared retail investors seeking the answer of investing in the blogosphere will be certainly confused. Rational thinking time is over and doubts of personal investments appear. Chat rooms full of winning trades are common. As an old fart investor, I was indeed impressed by all those winner traders hanging around those blogs. I am still in awe as I still manage to have some losing trades. What do I do wrong?  I see retail investors claiming to have 100-120 positions at one time. I called my fund manager and asked him how many stocks he is holding. The reply was less than 50.

I see day traders and option traders posting only winners. I am confused here as statistics show over 70% of day traders are losing money. I agree that once accounts have been closed , new day traders trying their luck appear. It is confusing indeed for an old fart investor like me.

Reminds me a little bit of the usual casino gamblers talking only about their winnings and never their losses.


Reading about POMO & QE Armageddon and how the FED is pushing up equities bitching bloggers is very disturbing as well. I am asking myself “why should I bitch about it when stocks go up and I make profits”.

Do those conspiracy bloggers actually know the real effects of QE2?
Do they know that the FED is trying to keep interest rates low by purchasing Treasuries? I did not see them publish any equity purchases
Isn’t it that QE inflates asset prices and a rising market creates optimism.
Optimism creates economic growth -> me thinking. But hey, I am just an old fart investor and what do I know.

Most surprising for me are all those inflation calls and the connection to Gold rising higher and to the moon. Being a cautious and avid Commodity Investor myself, I am actually scared of real inflation as this would lead to a decline in Gold price. The 11 year rise of Gold is connected and based on D E F L A T I O N. Yes I said it ! The USD is deflating and this is the only reason for me to be in Gold. I do ignore the hyper inflation conspiracy articles as they are too misleading.

I do agree that food prices in other parts of this world are actually rising, but they are rising due to demand and shortage of supply and not because of QE2 . Even in a barter trade, if I have exotic fruits being in demand and supply is limited, don’t I get double of lets say meat for it if it has oversupply and less demand? -> me old fart thinking.

After all the market top hype in the blogosphere, I admit being worried about my July & August 2009 buy signal and checked immediately if I need to worry. I was pleased to find out that I did not need to worry.
(see chart below – courtesy of stockcharts.com)







In December however, I decreased holdings in Precious Metal Sector and explained it in a timely manner on 6 December 2010 on a financial blog called Slope of Hope. The only blog I ever joined and made an effort to post commentaries (however, due to some disturbances caused by a group of grumpy self centered know it all characters, it has ceased).  That does not mean we are heading for a bear market! I would rather view this current correction as very healthy and bullish for investors who wish to participate in this ongoing bull market.

When Silver was trading 30 USD, I made an effort to post below chart and explained that a correction should be considered a gift for investors and investors holding PM stocks can or should reduce positions  “but not” sell the core position

(Chart courtesy of stockcahrts.com)


As we can see across the PM sector, a correction has begun since early December 2010. When PM stocks trade 1.66 x 200dma , it is indeed time to take some profit and hold onto core position.

(Chart courtesy of stockcahrts.com)

Having stepped away from the Major Top calling crowd, I did make a short summary of last week market action.
Since Nasdaq was the leader in past rallies and was near 2007 top, it is best to look at it first.

* Nasdaq daily chart has turned negative
* Nasdaq Summation Index made a turn south and created a sell signal
* Up-/Down Volume turned negative
*Advance/Decline turned negative
*McClellan Indicator created a sell signal
*NYSE Tick moving south

To sum it up, market breadth is not healthy and already signaling where the market is heading.


(Charts courtesy of stockcharts.com)







continue summary ….

Gold - > still has a valid sell signal
Silver -> still has a valid sell signal

Dow & SP500 have no sell signal yet !

Transport Index hit the 50 EMA and turned south. Might be a sign of more weakness coming up.

Stocks still outperforming bonds

Bonds still on a valid sell signal

VIX is turning up and 1 to 2 more down days would create a buy signal for VIX

Natural Gas has a valid intermediate buy signal ( mentioned it mid December to accumulate Natural Gas)


Summary:
With Nasdaq & Transport turning negative, I do expect next week some weakness in Dow & SP500 as well. Having said this, I do not expect the start of a bear market. Rather a healthy correction of the 6 month rally.

Remarks:
I do apologize in advance for my rather humbled English language & grammar skills as it is not my mother tongue.

A big thanks to "Doc" Barter for writing this article. 

Legal note:
The article is intended solely for The Slippery Slope Investor Blog.
Any copying or distribution without the authors consent is prohibited

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