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The Nature of Rallies that Follow Massive Bear Markets
By Tim McMahon, editor
Typically the best time to buy is when everyone else is selling. This one motto has made Warren Buffett a billionaire. He’s said,
Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it…
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. Warren Buffett
So in October 2008, when things looked their worst he invested $3 billion in General Electric (NYSE-GE). Four months later the market began to recover. Buffett has always been a long term optimist but he is also a realist.
It’s never paid to bet against America. We come through things, but its not always a smooth ride.
Warren Buffett
Since the creation of the Dow index there have only been three “Massive” corrections, where “Massive” is defined as a decline of more than 50%. Two of them happened at the beginning and end of the great depression. The third one began in 2007 and bottomed in 2009 and we are in the process of recovering from it. The only other comparable market decline was the Nasdaq “Dot Com bubble” that burst in 2000 resulting in a 78% decline in the NASDAQ with the associated post crash rally beginning in 2002.
So the following chart from our friends at Chart of the Day compares the four rallies that followed the four massive declines, i.e. the current 2009 rally, the 2002 NASDAQ rally, the 1942 Dow rally and the 1932 Dow rally.
Stock Trends by Month
By Tim McMahon, editor
I read quite a few books on investing strategy every year but one that sticks in my mind is by legendary investor and trader Larry Williams called The Right Stock at the Right Time. In it he outlines the monthly and yearly trends that can provide a basis for your overall investment strategy.
The monthly trend is basically the the average of all the January gains (or losses) then all the February, then March, etc. It is amazing to see how similar each month is from year to year. Of course not every January is the same as all other Januarys but understanding which are the typically weak months and which are the strong ones can help shape your buying and selling timing.
So today when I opened my email I was surprised to find a very similar chart from the good people at Chart of the Day.
You can see that there really is a correlation because
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Six Straight Weeks of Decline Take DJIA Below 12,000: What Now?
Before blaming falling stocks on the most recent weak economic reports, let’s check some dates.
As of June 10, the Dow has suffered the “longest losing streak since the fall of 2002. The market’s last seven-week stretch of losses began in May 2001, as the dot-com bubble deflated,” reports The Associated Press.
As for why stocks are falling, most observers agree: Blame “weaker hiring, industrial output, and a moribund housing market.” The economic reports from the past two weeks made that clear.
But wait a minute. The DJIA didn’t top in the past two weeks — Continue reading
Apple and Goldman Crash- Panic Hits S&P?
January 19th, 2011
Today the stock market bled out with a river of red candles. All of the recent gains vanished in one session. Strong selling volume sessions like this are typically a warning sign that distribution selling is starting to enter the market.
Distribution selling is when the big money players start unloading large positions in anticipation of a market top. They do try to hide it by selling into good news or earnings when the average investors are buying into all the hype of better than expected earnings on the news. As average investors jump into the market because of the good news, this extra liquidity helps the big money players (banks, hedge funds, etc..) sell large amounts of their positions to the eager buyers. This is why the “buy on rumor and sell on the news” saying is kicked around wall street….
Earnings Drive Stock Prices? See This Chart Before You Answer
A free Club EWI report exposes the TEN most misleading myths of Wall Street, including this one: “Earnings drive the stock market.”
Since the time of buttonwood trees, Wall Street has had its own version of the Ten Commandments — the cornerstone principles of conventional economic wisdom. The first of these writ-in-stone notions is the widespread belief that earnings drive the stock market.
By this line of reasoning, knowing where a market’s prices will trend next is simply a matter of knowing how the companies that comprise said market are expected to perform. On this, the recent news items below capture the public’s devoted following of earnings data:
- “Stocks Rebound As Investors Await Earnings.” (Associated Press)
- “US Stocks Drop As Earnings Data Fall Short” (MarketWatch)
- “Sideways Market Looks For Direction: Earnings Could Point The Way” (MarketWatch)
In reality, though, much of this belief is based on faith, not facts. While earnings may play a role in the price of an individual stock, the stock market as a whole marches to a different drummer. Continue reading
What Really Moves the Markets: News? The Fed? The Real Answers Will Surprise You
Elliott Wave International’s free 118-page Independent Investor eBook explains why financial markets are NOT a matter of action and reaction
“There is no group more subjective than conventional analysts, who look at the same ‘fundamental’ news event a war, interest rates, P/E ratio, GDP, economic policy, the Fed’s monetary policy, you name it and come up with countless opposing conclusions. They generally don’t even bother to study the data.” – EWI president Robert Prechter, March 2004 Elliott Wave Theorist.
If you watch financial news, you probably share Bob Prechter’s sentiment. How many times have you seen analysts attribute an S&P 500 rally to “good news from China,” for example — only to focus on a different, supposedly bearish, news story later the same day if the rally fizzles out? Continue reading
What’s the secret of finding winning gold, silver, and other natural resource stocks?
Doug Casey’s Secret to Finding Winning Stocks
I’ve been asked “What’s the secret of finding winning gold, silver, and other natural resource stocks?” more times than I can even begin to count. And for over 20 years, my answer has remained pretty much the same: the Eight Ps.
The Eight Ps is a relatively simple question-and-answer process we use as part of our due diligence on the stocks we consider for recommendation in our monthly newsletters. Only a small fraction of companies successfully make it through the Eight Ps screening and into the pages of our publications. Continue reading
“Market Manipulation” Is Not Why Most Traders Lose
How often have you heard analysts refer to a down day on Wall Street as “traders taking profits”? Sounds great, but the sobering fact is that most traders — in futures, commodities, or forex — lose money.
Any book on trading will list for you the many reasons why most traders lose. Yet some traders do win; some even set records. In 1984, Elliott Wave International’s founder and president Robert Prechter won the U.S. Trading Championship, setting a new all-time profit record of 444.4% in a monitored real-money options account. Later in his monthly Elliott Wave Theorist, Prechter published a Special Report “What A Trader Really Needs To Be Successful” with 5 important insights for would-be market speculators (including the explanation of why “market manipulation” is not why most traders lose.)
DJIA Priced in Gold: What It Means for the Long-Term Trend
One of the best ways to get a true view of where the market really is involves looking at it denominated in something else other than dollars. One of the most interesting tools (and least discussed in the financial media) is the DJIA priced in gold — “the real money,” as Robert Prechter calls it. What implications might the present position of Dow/gold have for the long-term trend of the nominal Dow? In this video, Steven Hochberg shows you several revealing charts that answer this question. My personal favorite is his comparison of the Dow priced in three different terms- Dollars, Gold and other commodities. You get an amazing picture of when the bull market really ended. Check out the video. ~ Tim McMahon, editor. Continue reading
The Fed and “Plunge Protection Team”: Are They Manipulating Stocks?
Rumors are, the U.S. government “is propping up the stock market.”
By far, the most frequent question we’ve been asked recently is:
“What is your take on the persistent internet chatter that the Federal Reserve is holding up the stock market via QE2, POMO, etc.? How can stocks ever decline again if the Fed is in control?”
Here is an eye-opening chart that will help shed more light on this issue.
EWI President Robert Prechter published this chart in his October 2008 Elliott Wave Theorist. Review this chart carefully. For too many investors, the crash of 2007-2009 is becoming a hazy memory. And almost no one in the mainstream financial media talks about the utter panic in the markets in September-October 2008, the worst part of the crash.
If you think back to that time, you may remember that the Federal Reserve and U.S. government took many aggressive steps to help stop the collapse. Every time they would announce a new intervention, the market would cheer. Result? Prechter’s chart gives an unequivocal answer:
