Corrections or Crashes?

Posted on 01/15/2019 by Yanis P.

The Dow would have to drop below 9000 to break below the main uptrend line; an unlikely event in the near future. However, this does not mean it’s impossible. Every once in awhile the markets experience a monumental crash that can shave of as much as 60% of the Markets current value. In this is instance we are using weekly charts; each bar on the chart represents one week’s worth of data. Straight off the bat, you can see that back breaking corrections translate into long term buying opportunities. Remember when there is blood in the streets and the masses are in panic mode, the opportunity is knocking.

Market Crashes are Buying Opportunities

The first zone comes into play at 16,000. If the Dow closes below this level on a monthly basis then there is a chance it could trade as low as 13,000. However, based on the current market sentiment, there is very little likelihood of such a scenario coming to pass. Mass Psychology is very clear when it comes to dealing with stock market crashes. Market crash on a note of Euphoria and bottom on a note of despair. Mass psychology states that optimum time to get into the markets is when the masses are in panic mode.

A fortress of support comes into play at the 13,000-13,500 ranges

To trade any lower than this level, the Dow would need to close below the above ranges on a quarterly basis. If it were to do that then the main uptrend line could be tested. Note that this trend will continue to trending upwards, so in 12 months, the trend line could move from the 9000 ranges to the 10,000 plus ranges.

Buy the Fear Sell the Joy

The individuals who arrive at the party late are the first ones to come out and mistake a correction for a crash.The crowd panics when it sees blood in the streets; instead of joining the crowd do something different take advantage of stock market crashes and buy as the crowd dumps quality stocks and flees for the exits.

Crash or correction boils down to the angle of observance

What is stunning to one, could appear ugly to another; it comes down to the angle of observance. Alter the angle and the image changes. Mass media and most experts try to alter the angle and direct you to see what they want you to see. They are in the fear “Selling Business” because fear sells, so they focus on creating a mountain out of a mole hill.

History clearly indicates that the Astute investors build very large stakes when there is blood in the streets. Moreover, they keep building these positions as long as the main driving force is fear. Take a look at the current Bull market; the Dow is trading at 22,000 and the masses are still nervous. It’s history in the making. The masses are always on the wrong side of the markets in the long run.

The astute investor always views financial disasters through a bullish lens. Instead of panicking they take advantage of stock market crashes.

Normality highly values its normal man. It educates children to lose themselves and to become absurd, and thus to be normal. Normal men have killed perhaps100, 000 of their fellow normal men in the last fifty years.
R. D. Laing 1927-1989, British Psychiatrist

Published courtesy of the Tactical Investor

Originally posted 2017-12-08 14:41:34.

Dow 22K Predicted In July 2017; Next Target Dow 30k?

Posted on 01/12/2019 by Yanis P.

The Dow appears to have broken through the top of the Channel formation that fell in the 20,800-21,000 ranges. If it closes above 21,300 on a monthly basis then despite the markets being overbought, the Dow could surge past 22K before running into a strong zone of resistance. Market Update June 18, 2017

Give the resiliency of this market; the Dow could very easily trade to 22K before it trades to 19K. The masses need to show some enthusiasm; if they don’t and the market pulls back strongly, then it has to be viewed as a screaming buy. For now, the masses seem to be locked in the pessimistic mode. The bullish sentiment has never traded to the 60% ranges even once this year; it did not even make it to the 55% ranges, and that is very telling. On the same token, the number of individuals in the neutral camp has generally continued to trend higher and higher. Market Update July 6, 2017

What’s next for the Dow?

Not only did the Dow trade to 22K but it surpassed this target and is now dangerously close to striking 23K. The sentiment is still not bullish, so the path of least resistance is upward. As for Dow 30K; there is a good chance that the Dow could strike this target. We discuss that in full detail in this article titled “Dow Could Trade to 30K But not before This Happens ”

If you prefer to watch a video; then the video covers the essential points of the above article

Originally posted 2017-12-06 15:58:04.

Black Monday – The stock market crash of 1987

Posted on 01/11/2019 by Yanis P.

What caused Black Monday: The stock market crash of 1987?

Monday October 19,1987, is known as Black Monday. On that day, stockbrokers in New York, London, Hong Kong, Berlin, Tokyo and just about any other city with an exchange stared at the figures running across their displays with a growing sense of dread. A financial strut had buckled and the strain brought world markets tumbling down.

In the United States, sell orders piled upon sell orders as the Dow shed value of nearly 22%. There had been talk of the U.S. entering a bear cycle – the bulls had been running since 1982 – but the markets gave very little warning to the then-new Federal Reserve Chairman Alan Greenspan. Greenspan hurried to slash interest rates and called upon banks to flood the system with liquidity. He had expected a drop in the value of the dollar due to an international tiff with the other G7 nations over the dollar’s value, but the seemingly worldwide financial meltdown came as an unpleasant surprise that Monday.

Exchanges also were busy trying to lock out program trading orders. The idea of using computer systems to engage in large-scale trading strategies was still relatively new to Wall Street and the consequences of a system capable of placing thousands of orders during a crash never had been tested. These computer programs automatically began to liquidate stocks as certain loss targets were hit, pushing prices lower. To the dismay of the exchanges, program trading led to a domino effect as the falling markets triggered more stop-loss orders. The frantic selling activated yet another round of stop-loss orders, which dragged markets into a downward spiral. Since the same programs also automatically turned off all buying, bids vanished all around the stock market at basically the same time. Full Story

The Crash of ’87, From the Wall Street Players Who Lived It

On Wall Street, when things decline, you tend to remember. When things decline a lot, you remember the date. Oct. 19, 1987, is one such example. The biggest single-day stock market collapse in history—a 23 percent drop—rendered once-trusted ideas useless and redefined the financial landscape for market professionals.

One of them was a rising Salomon Brothers bond salesman named Michael Lewis, who had yet to pen Liar’s Poker. “The markets in a panic are like a country during a coup, and seen in retrospect that is how they were that day,” he would later write of the chaos he witnessed. “One small group of people with its old, established way of looking at the world is hustled from its seat of power.”

Black Monday, as the day became known, is part of financial history’s fossil record, a divide between old and new markets. It was the first significant instance of computer-driven trading run amok. The nascent equity options market saw assumptions based on the Black-Scholes model overturned and replaced by a more complex world of volatility skews. And Federal Reserve Chairman Alan Greenspan, just two months on the job, got to glimpse a market panic and sell his first “Greenspan Put” under the U.S. equity market. Full Story

Remembering the worst day in Wall Street history

It was a day so terrible, it will forever be known as Black Monday.

On October 19, 1987, the stock market collapsed. The Dow plunged an astonishing 22.6%, the biggest one-day percentage loss in history. Even bigger than the 1929 stock market crash, just before the Great Depression.

Nothing since Black Monday has come close. Not the selloff after the September 11 terror attacks or the 2008 financial crisis.

On that day in 1987, as the cameras rolled on the frenzied floor of the New York Stock Exchange, prices on the ticker tumbled, the panic spread, and the crash worsened. By the closing bell, the Dow stood at 1,738.74, down 508 points. Full Story

Originally posted 2018-06-12 19:21:49.

Stock Market Crash Of 1929

Posted on 01/10/2019 by Yanis P.

What was the ‘Stock Market Crash Of 1929’

The Stock Market Crash of 1929 began on October 24. While it is remembered for the panic selling in the first week, the largest falls occurred in the following two years. The Dow Jones Industrial Average did not bottom out until July 8, 1932, by which time it had fallen 89% from its September 1929 peak, making it the biggest bear market in Wall Street’s history. The Dow Jones did not return to its 1929 high until November 1954.

BREAKING DOWN ‘Stock Market Crash Of 1929’

The stock market crash of 1929 followed a bull market which had seen the Dow Jones rise 400% in five years. But with industrial companies trading at price-earnings ratios of 15, valuations did not appear unreasonable after a decade of record productivity growth in manufacturing – that is until you take into account the public utility holding companies.

By 1929, thousands of electricity companies had been consolidated into holding companies which were themselves owned by other holding companies, which controlled about two-thirds of American industry. Ten layers separated the top and bottom of some of these complex highly leveraged pyramids. As the Federal Trade Commission reported in 1928, the unfair practices these holding companies were involved in — like bilking subsidiaries through service contracts and fraudulent accounting involving depreciation and inflated property values — were a “menace to the investor.”

Full Story

A brief history of the 1929 stock market crash

The stock market crashed in 1929, plummeting into a correction.
Margin buying, lack of legal protections, overpriced stocks and Fed policy contributed to the crash.
There are ways to protect investors can protect a portfolio from downturns.

On October 16, 1929, Yale economist Irving Fisher wrote in the New York Times that “Stock prices have reached what looks like a permanently high plateau.” Eight days later, on October 24, 1929, the stock market began a four-day crash on what became known as Black Thursday. This crash cost investors more than World War I and was one of the catalysts for the Great Depression. Irving Fisher’s declaration went down as the worst stock market prediction of all time.

Before the 1929 stock market crash: Risks and warning signs

Hindsight is always 20/20 but in the Roaring Twenties, optimism and affluence had risen like never before. The economy grew by 42% (real GDP went from $688 billion in 1920 to $977 billion in 1929), average income rose by about $1,500 and unemployment stayed below 4%. In the wake of World War I, the U.S. was producing nearly half of global output and mass production made consumer goods like refrigerators, washing machines, radios and vacuums accessible to the average household. Investing in stocks became like baseball – a national pastime. As newspaper headlines trumpeted stories about teachers, chauffeurs and maids making millions in the stock market, concerns about risk evaporated.

Full Story

Why The 1929 Stock Market Crash Could Happen In 2018?

As U.S. stocks continue soaring to record high after record high, investors anticipating an inevitable plunge have yet another cause for sleepless nights. The CAPE ratio, a measure of stock valuations devised by Nobel Laureate economist Robert Shiller of Yale University, is now at a higher level than it was before the Great Crash of 1929, the Financial Times reports, adding that the only time the CAPE was even higher preceded the dotcom crash of 2000-02. However, the FT notes, there are some differences between 1929 and 2018 that make the CAPE parallel less terrifying for investors.

From their previous bear market lows reached in intraday trading on March 6, 2009, through their closing values on January 12, 2018, the S&P 500 Index (SPX) has gained 318% and the Dow Jones Industrial Average (DJIA) has advanced 299%. Regarding the CAPE valuation analysis, there are several key limitations.

Drawbacks of CAPE

According to investment manager Rob Arnott, the founder, chairman and CEO of Research Associates, CAPE has been on an upward trend over time. This makes sense both to him and to the FT since the U.S. as progressed from being essentially an emerging market to the world’s dominant economy during the course of more than a century. As a result, both believe that an increasing earnings multiple for U.S. stocks would be justified. While the current value of CAPE is above its long term trend line, the difference is much smaller than in 1929, as Arnott’s detailed research paper shows.

Full Story

Originally posted 2018-06-12 17:59:42.

Most Hated Stock Market Bull can’t be stopped by weak economy

Posted on 01/09/2019 by Yanis P.

The data below serves as further proof that the economic recovery is nothing but an illusion. It has only benefited those who don’t really need it. The rich have become even richer, the middle class has vanished and the poor are becoming even poorer.

Real incomes have been flat to down slightly for the average household in the bottom 60% since 1980 (while they have been up for the top 40%).
Those in the top 40% now have on average 10 times as much wealth as those in the bottom 60%. That is up from six times as much in 1980.
Only about a third of the bottom 60% saves any of its income (in cash or financial assets).
Only about a third of families in the bottom 60% have retirement savings accounts—e.g., pensions, 401(k)s—which average less than $20,000.
For those in the bottom 60%, premature deaths are up by about 20% since 2000. The biggest contributors to that change are an increase in deaths by drugs/poisoning (up two times since 2000) and an increase in suicides (up over 50% since 2000).
The top 40% spend four times more on education than the bottom 60%.
The average household income for main income earners without a college degree is half that of the average college graduate.
Since 1980, divorce rates have more than doubled among middle-aged whites without college degrees, from 11% to 23%.
The number of prime-age white men without college degrees not in the labor force has increased from 7% to 15% since 1980. Full Story

What should you do?

Sentiment indicates the masses are not bullish so this market is not ready to crash. Instead of panicking make a list of stocks you would like to own and when the market’s pullback, buy these quality stocks at a huge discount.

Originally posted 2017-12-06 15:49:39.

Nothing about 1987 stock market crash anniversary

Posted on 01/08/2019 by Yanis P.

Stubbornness does have its helpful features. You always know what you’re going to be thinking tomorrow.

Glen Beaman

Expert after expert is busy proclaiming that the world is about to come to grinding halt again.

They never seem to let up on pushing this sewage onto the unsuspecting masses. This is a clear example of insanity in action; mouthing the same thing over and over again with the desperate hope that this time the outcome will be different. The outcome will not be different this time, at least not yet. These guys should focus on writing fiction for reality seems to elude them completely. For years we have stated (and rightly so) that until the sentiment changes, this market will continue to soar higher and higher.

Here is a small sample of the flood of articles that were pushed out this month. If one simply glances through them, one would almost be compelled to think that the writers shared the same notes. There is almost no originality in these articles. The theme is the same, just because it’s October the focus is on the disaster aspect of the 1987 crash. Almost no one mentions that it proved to be a monumental buying opportunity. The focus is oh the financial world came to a grinding halt. Only it did not, the only that came to a halt was the rubbish the predecessors of today’s experts were uttering back in 1987. This reinforces the view that most financial writers have chosen the wrong profession One word sums all this nonsense “Rubbish.”

Could the 1987 stock market crash happen again? – Reuters
Black Monday anniversary: How the 2017 stock market compares with 1987 – Market Watch
Black Monday: 30 years after 1987 stock market crash… Wall Street raises fears of REPEAT- express.co.uk
Thursday marks 30th anniversary of the Black Monday stock market crash – courier-journal
Buy Climax at 30th Anniversary of 1987 Stock Market Crash – Money Show
The Crash of ’87, From the Wall Street Players Who Lived It – Bloomberg
Black Monday: Can a 1987-style stock market crash happen again? – USA Today

So are we stating that the stock market will never crash?

No that is not what we are stating. The market will crash, but for the astute investor, “crash” is the wrong word to use. A strong correction is more likely as most astute investors got into this market a long time ago. It is the crowd that will eventually decide to embrace close to the top that will experience this crash that the experts have been hyping about for years.

This market will experience one strong correction before it crashes, but the moment the Dow sheds 1000 points or more these experts will crawl from the rocks they were hiding under and start screaming bloody murder. To which our response is, please scream as loud as you can; for it will push the markets lower creating a better buying opportunity for us. This is exactly what we said in Aug of 2015 before Trump won and countless times before and after that.

This market is extremely overbought so a pullback ranging from 1500-3000 points should surprise no one and it certainly should not be construed as a crash but viewed as market releasing a well-deserved dose of steam. To state otherwise, would simply be disingenuous, which seems to be the only real qualification these so-called experts posses

Market Sentiment indicates that the crowd is far from Ecstatic

The Bullish sentiment has risen somewhat, and the crowd is not as anxious as it was at the beginning of this month or last month, but until the readings indicate this crowd is euphoric, a crash is unlikely. Many people state that most people don’t have money to invest in the markets. We beg to differ; look at whats going on in the Bitcoin market, now that is a market showing some signs of Euphoria; the stock market in comparison is at the lukewarm stage.

Buy The Fear & Sell The Noise

The only thing that is going to crash and has been crashing since 2008 is the egos of these “know it all” experts. If any of them had even listened to themselves half of the time; they would have bankrupted themselves several times over. The fact that they are still around chiming the same rubbish is clear proof that they don’t believe a word they are putting to print and therefore neither should you.

Why Not Try Something New For A Change

Make a list of stocks you would love to own at a discount. When the market lets out a nice dose of steam, instead of fleeing for the hills, you can purchase top quality stocks for a discount

The sheer volume of these articles validates our view that the masses are from bullish and a crash is unlikely. Until the sentiment or the trend changes, all strong corrections should be viewed through a bullish lens.

Obstinacy is the result of the will forcing itself into the place of the intellect.

Arthur Schopenhauer

Originally posted 2017-12-06 15:45:38.

BitCoin VS Precious Metals

Posted on 01/07/2019 by Yanis P.

There is no absurdity so palpable but that it may be firmly planted in the human head if you only begin to inculcate it before the age of five, by constantly repeating it with an air of great solemnity. Arthur Schopenhauer

Gold bottomed in 2002, and it took nine years for its trade to a high of roughly $1900 (September 2011). Contrast that to Bitcoin, in less than 1/3^rd of the amount of time it is showing gains of more than 11,000%. It took nine years for Gold to show gains of roughly 700% and Gold has given up a substantial portion of those gains.

We bailed out of Gold in 2011 for two reasons:

Gold was trading in the extremely overbought ranges, and the Gold Bug Camp could not contain their glee; they thought the sky was the limit. Instead, they found out that the Ground was a lot closer.
The masses were not embracing Gold, and they refused to treat or view it as a currency.

Only those from the hard money camp continued to believe that Gold was a currency, but sadly their numbers are dwindling with the passage of each day. The masses view Bitcoin as cool and secure; a feat Gold has struggled to achieve and is not likely to achieve in the foreseeable future. Whether this is true or not, hardly matters for when it comes to investing, perceptions are all that matter.

Does this mean the precious metals sector is dead?

Well, that depends on what one means by dead. Gold has performed abysmally since (it topped out) 2011. The money supply soared, and Gold tanked, not exactly a good sign. In doing the opposite of what was expected from it, Gold cemented the view that it was an ancient relic that has no place in today’s monetary system. We are speaking in terms of Mass Perception. What we think, matters not; we follow trends, and we don’t waste time trying to look at things from a personal vantage point. There are many reasons for Gold’s underperformance after 2011; one of them was the “velocity of the money supply” which all but stalled after 2011. However, the masses don’t waste time on details like this. They look for simple cause and effect answers. Money supply soared, Gold did nothing, and hence Gold is a waste of time. A bit simplistic but that’s the mass mindset for you. However, looking forward some factors could limit Gold’s lustre

Demand for Gold continues to drop

India’s gold consumption is likely to drop to its lowest in eight years in 2017, hit by government moves to make bullion trading more transparent and by faltering demand from some rural areas, the World Gold Council (WGC) said on Thursday.

Evidence of weaker appetite in a country where gold is used in everything from investment to wedding gifts could drag on global prices that have been hovering near their highest in three weeks. India is the word’s No 2 consumer of gold behind China. Full Story

The Dollar appears to be putting in a base

The dollar topped in early 2017 and what did Gold do? Absolutely nothing; instead of surging to new highs it could not even trade past its July 2016 highs. The dollar, in contrast, has been going through a well deserved period of consolidation after mounting a stunning rally that started in 2011. It tested support and held, and as long as it does not close below 90 on a monthly basis, the outlook will remain bullish. Consequently, a monthly close above 94.50 will open the possibility for a test of the old highs.

Conclusion

The dollar is getting ready to mount a rally, demand for Gold is declining, and Gold has been unable to trade past $1350 even in the face of a weaker dollar. Then we have the Bitcoin market, which the masses (especially millennia’s) find to be a lot more exciting and rewarding than Gold. All these factors don’t bode well for Gold. It appears that Gold is likely to test the 1000 ranges unless it decides to diverge and trend upwards in tandem with the dollar. Bitcoin, on the other hand, is now in the feeding frenzy stage, so this market is ripe for a correction. However, the upward move is still not over. After a hard correction, Bitcoin is likely to resume its upward trend.

Gold will probably never experience a move akin to that of Bitcoin, but that does not mean it won’t make for a good investment one day. For now, the trend is neutral; a weekly close below $1100 will darken the outlook for Gold, but a monthly close above $1350 will indicate that Gold is ready to trend higher.

Word to the wise

Never fall in love with any investment. In the end, it’s the trend that you should pay attention to, for no sector can trend upwards forever. The odds of the Dow trading to 29,000 are far better than of Gold trading to $1900.

Published courtesy of the Tactical Investor

Originally posted 2017-12-06 15:33:36.

US Dollar Finally Hit Bottom?

Posted on 01/06/2019 by Yanis P.

US Dollar Finally Hit Bottom and Gold could be heading lower

The theme from the Gold bug camp for so long has been; Gold is going to soar to the moon. What many forget is that these fools have been singing this same song for decades. Instead of soaring to the moon, Gold has been licking the dust for almost 7 years. It topped off in 2011 and since then the action has all down with a few false breakouts that the misguided Gold bugs mistook for the beginning of a new bull run.

We are not against Gold or the precious metals sectors; we actually favour the hard money doctrine, but the problem is that view is not shared by the majority. Mark Dice illustrated that most individuals would take a candy bar over a 10oz bar of Silver.

Now many would respond by saying these people are stupid, etc. That’s not the point, the point is that most people no longer view Gold as currency; instead, they view it as some ancient relic.

Is the Dollar getting ready to Rally?

The bigger issue is that the Dollar appears to be putting in a base. The dollar has mounted a very strong rally since it bottomed out in 2011, so the current consolidation is to be expected. The dollar is holding firmly at 90; a zone of strong support. As long as the dollar does not close below 90 on a monthly basis the outlook will remain bullish. With the passage of the Trump’s Tax package, the outlook for the dollar and the stock market has brightened significantly pushing Gold even deeper into the shadows. If the Dollar can close above 94.50 on a monthly basis, the groundwork will be laid for a test of the old highs.

Gold, on the other hand, looks like it’s going nowhere

The dollar topped in early 2017 and did the Gold market respond positively to this event. The reaction was muted at best. Instead of surging to new highs it could not even trade past its July 2016 highs. To make matters worse, gold put in a lower high than it did in July of 2016, even though the dollar traded below its 2016 lows.

Other bearish factors

Instead of putting in a series of higher lows, Gold has been putting in a series of low highs since 2013.

It has not managed to trade above $1350 for more than a brief period. This illustrates that demand is not robust and the market is not pricing in all the negative news. Until Gold can trade above $1350 on a monthly basis, the outlook will remain Neutral to bearish.

If the US Dollar Finally Hit Bottom, then it should be testing its old highs within 12-15 months

The dollar is oversold and the pattern is still bullish. It has gone through an extensive consolidation phase and it is now trading in the oversold ranges. A monthly close above 94.50 will solidify the longer-term outlook and indicate that the dollar is ready to test and possible challenge it’s all-time highs.

Published courtesy of the Tactical Investor

Originally posted 2017-12-06 15:22:06.

Experts Are Not Smart Enough to Spot Stock Market Crash 2017

Posted on 12/29/2018 by Yanis P.

Stock Market Crash 2017 boils down to all bark and no bite

For the past few years much the angst of many experts we have consistently stated that the markets were not ready to crash. Moreover, we believe that Experts are not Smart Enough to Spot Stock Market Crash 2017. If they were they would not have made the same predictions in 2014, 2015 and 2016. All these predictions of disasters proved to be nothing but idle chatter.
From late 2016 to early 2017, many former Bulls who predicted the direction of this market quite well, suddenly decided that the stock market was ready to crash. We, however, begged to differ, and we provided two very simple reasons for our stance.

Experts Fail To Realise that Emotions drive the markets:

The masses have remained nervous throughout this bull run; no bull market has ever ended when the masses are nervous. History indicates that stock market crashes begin on a euphoric note and end on a note of hysteria.

The trend clearly states that the Experts are on the wrong side of the Stock Market Crash 2017 argument

We focus more on the psychology of the masses than on any other single factor. However, the 2^nd most important factor is the trend. The trend has remained positive throughout this bull run; occasionally it has moved into the neutral zone, but it has never turned negative. We are not talking about the trend based on the drawing of simple trend lines but one that is calculated utilizing several factors one of which happens to price action.

So when the experts started to scream over and over again about the impending stock market crash of 2017; these are some of the comments we recently made to our readers and or subscribers

Let the experts sing their songs of doom and con the masses; it takes two to tango, one to cry and three to have a party. We have experts from the technical analysis side and experts employing fundamentals trying to use to back their faulty assertions. Unfortunately for these penguins both of them are wrong. They have failed to pay attention to the psychological factor. There is no factor more important when it comes to playing the markets then market psychology. Market Update April 30, 2017

The market marches to its beat and those that resist are drained; financially speaking that is. We are not fortune tellers; we reserve that noteworthy task for the experts who seem to take delight on spewing rubbish week after week. The media then regurgitates this rubbish, and a jackass is suddenly made to look like a movie star. What a wonderful world we live in and people wonder why they lose money after listening to these wise men.

We, on the other hand, prefer to listen to what the market is saying and that is why we never listen to our gut instinct or let our emotions into the equation. We look for trends. Market Update May 19, 2017

What’s The most nonplussing factor in this bull market?

The emotional state of the masses; the herd, for the most part, has been oscillating back and forth from the neutral to the Bearish camps; very few have dared to venture into the bullish camp. This probably explains why the bullish readings never even came close to testing the 60% ranges for the past 15 weeks and counting. During that time the market has been trending higher and higher. This has caught many an expert with his pants down. But there is no surprise here; the reason as we have stated so many times over and over again is that the Crowd is not euphoric and the trend is still bullish.

The same pattern holds true for most of 2015 and 2016; the number individuals in the Bearish and neutral camps outnumbered those in the bullish camp. If you are in the Neutral camp one of two things one of two things apply; you are either are a bear that got burned or Bull with no courage to take a position.

Our proprietary sentiment indicator also confirms that the masses are still antsy.

Market Structure

If the markets were extremely overbought, then it should be almost impossible to find stocks that are trading in the oversold ranges on the monthly charts. On a monthly chart, each bar represents one month’s worth of data on; these charts provide great clues of what to expect from the markets.

In the Dow, we spotted several stocks that were trading in the extremely oversold ranges to oversold ranges on the monthly charts. AAPL, HD, DIS and NKE are examples of such stocks.

We also examined roughly 150 random Midcap to large cap stocks (ETF’s were included in this analysis) from various sectors; we found that almost 60% of the stocks examined were trading in the oversold ranges; one ETF that caught our eye was IBB; it is trading in the extremely oversold ranges.

We also noted that the net number of new 52 week highs continuously exceeded the net number of new 52 week lows. Why is this important? It indicates that the internal structure of the market is healthy.

Tactical investors Alternative Dow theory states that the experts have it wrong

Our stance for the past 11 years has been that the Dow Theory is dead; we provided an alternative Dow Theory that has proven to be far more accurate than the original. This theory states that it is the utilities that should be followed and not the transports. We will cover this in more detail in a follow-up article next week. In essence, it is the Utilities that lead the way and not the transports.

The utilities started to consolidate roughly from Aug of 2016 and bottomed out in Nov 2016 and had consolidated for roughly three months before they started to trend upwards. The utilities are now surging to new highs, and this bodes well for the overall market. The alternative theory states that the Dow should follow suit.

This is a mature bull market so one should not expect it to trend in one direction only; it will experience several corrections ranging from mild to severe. Unfortunately, the Dr’s of doom will confuse this correction for a crash as they have mistakenly done so for the past eight years and counting. When the masses embrace this market, the end will be close at hand; until then strong corrections should be embraced.

There is a lag period between the utilities and the Dow; sometimes it comes down to just a few weeks, but usually, it ranges from 3-5 months. The Dow has been consolidating since March; it has essentially been trading in a tight range. Even though the Dow did not pull back strongly, the sideways action helped it blow out a large dose of steam as envisioned by the MACD’s and several other technical indicators that are trading in the oversold ranges. The lag period was roughly three months as the utility bottomed out in Nov and the Dow started to consolidate in March of 2017.

The stock market crash theme makes for great headlines as fear sells well, but that is all it has been good for so far. The market will experience a much stronger correction over the course of the next 6-15 months, but until the masses embrace this bull market, those corrections will prove to be buying opportunities.

The overall Market sentiment illustrates that the masses are not jumping with joy. The trend is positive, and the Dow Utilities have surged to new highs. Therefore under such conditions, it is hard to envision a crash like a scenario.

Every bull market experiences one back breaking correction that is mistakenly labelled as the beginning of a new bear market. When that occurs, it will be a sign that the end is close at hand. That strong correction will subsequently trigger an even stronger rally and fuel a feeding frenzy. Sentiment will turn bullish, and the masses will dance with Joy, then the bottom will drop. However, we are not at this stage, so there is no point in further developing this story line.

Our ideal setup would call for the Dow to shed 600-1000 points over a very short period; this would drive the masses into the hysteria zone. A small push is all it would take to drive the fear factor through the roof. We all know what happens next; the masses stampede, the smart money swoops in, and history repeats itself once again. For the masses, it is groundhogs day every single day.

A genius can’t be forced; nor can you make an ape an alderman.

Thomas Somerville

Published courtesy of the Tactical Investor

Originally posted 2017-07-31 14:20:27.

What Every Investor Should Know about the Dow Theory?

Posted on 12/23/2018 by Yanis P.

The transports topped out in November of 2014, and according to the Dow theory this is a big negative; the Dow Industrials should have followed suit. Instead, the Dow soared higher paying no heed to this theory proving to a large degree that this argument has lost its value. After all, it is a theory and the definition of a theory is “a supposition or a system of ideas intended to explain something, especially one based on general principles independent of the thing to be explained.”

As early as 2006 we offered an Alternative Dow Theory that has proved to be far more accurate and reliable than the original Dow theory. Just to let this sink in, the transports topped out almost two years ago and instead of trending lower the markets have surged to new highs. If you look at the above chart, the Transports appear to be finally gathering momentum and to break out. In the Dow theory alternative, we stated it was the Utilities that lead the way as opposed to the Dow transports, well let’s see if that holds true. The reason we are using older charts is to illustrate the power behind this alternative theory fully.

The Alternative Dow Theory Has A Better Track Record than its predecessor

In the chart above, the utilities pulled back after the Dow transports, let out some steam and then soared to new highs. Even though the correction appeared to be strong, the Dow utilities held above the main uptrend line. It is all but obvious that the Dow utilities are a better barometer of what one should expect from the markets. The Utilities topped in Feb of 2015, and after that, the Dow trended sideways before correcting, illustrating that they follow the lead of the Utilities and not the Dow transports.

The Dow utilities bottomed towards the end of August 2015 and rallied until Nov of 2015 before pulling back again. The Dow followed in the utility footsteps. It bottomed in Jan of 2016, while the utilities bottomed on Dec of 2015; once again leading the way. The Dow utilities rallied until July 2016 before pulling back.

The Dow rallied until Aug of 2016, proving again that the utilities are a better indicator of market direction than the Dow transports. At this point, it appears that the utilities are building momentum to take off again. If the pattern holds, then the Dow should follow in its path.

How are the Dow Industrials and Dow Transports faring in 2017?

Well, as you can see the transports took off like a rocket after September 2016 and have not looked back since. The picture of the Dow industrials is almost identical to that of the Dow Transports.

Once again, we have clear evidence illustrating that the Dow utilities provide a much clearer picture of where the Dow is heading as opposed to the Dow Transports.

Out with the Old Dow Theory and In with the New Dow Theory

The Dow utilities and the Dow industrials both traded to new highs; this means rather than leading the way up the Dow transports are propelling individuals to draw the wrong conclusion. The Dow Theory ceased to work properly a long time ago, and in the era of hot money, it is having a hard time trying to be relevant. The alternate Dow Theory that focuses on the utilities is a better option. Thus, maybe it is time to put this 100-year-old theory to rest; we will let you be the judge.

Paying attention to what the utilities are doing going forward could prove to be rewarding. Once the Dow utilities start to trend upwards, it should serve as a strong signal that the Dow is going to follow in its path. Applying the principles of Mass psychology and Contrarian investing we were able to state with confidence that the experts were wrong when they stated this market would crash in 2014, 2015, 2016 and so far in 2017. In fact, we went on record to the state over and over again that this Stock Market Bull would trade to heights that would shock everyone.

Published courtesy of the Tactical Investor

Originally posted 2017-07-25 10:00:20.