Stocks Stealth Bull Market Pounds the Crash is Coming Bears with Euro-zone Hammer

Dear Nadeen,

Please would you explain your first chart. Are your trend lines indicating that there will be a correction around 12500 from your slightly downward trend line from the market high? Do you envisage that the DOW will hit resistance and then go higher and if so, when?

Also, please would you explain when a bull market becomes a bear market. At what level on your chart would indicate a bear market? How can a novice understand when technically this happens? Does the DOW have to go below a certain support level to indicate a change from a bull market to a bear market? Any advice and examples you could give would be appreciated.

Thanks Nadeem.

John

Nadeen,

Thank you for your insights.

Please could you explain what constitutes a bear market? I am at a loss, since most of the european markets tanked more than 20% over the last few months yet the DOW has tanked just less than 20%. Does a bear market mean that a stock market must fall more than 20%? Does this mean some european indices are in bear markets but the DOW is not?

I just don't understand. Is there some way (technical or otherwise) how we can determine a sustained bear market or a sustained bull market and at what point does a bull market become a bear market?

Please would you explain this. Thank you.

Cheers,

Chris

Dear Nadeem,

Could you possibly do a quick analysis on some of the commodity stocks (e.g. rio, ved, kaz, bhp).

If we are in bull market (stealth bull market) as you say with a decade of inflation (inflation mega trend) why did these stocks fall by such massive percentages.

Are they still in a bull market. What technical analysis (e.g. long term trend lines, s&p) do you use to determine whether a commodity stock is in a bear market or a bull market?

I would appreciate it if you could respond specifically to these commodity stocks and why they were sold off so much recently and how you determine whether they are still in a bull market.

Many thanks,

Kelvin

It seems so simple in hindsight, yet so many "investors" fail to do it. Without great analysts like you I would probably still be in the 90%, but I am now learning to ignore the media noise and focus on my long term strategy. Even our national mainstream news here in Canada had special round-table discussions on how to protect your money during the upcoming recession...

Thank you so much for sharing your hard work.

P.S. Is your housing analysis specific to the UK? Do you have an opinion on whether inflation will be enough to sustain nominal house prices in countries where no significant correction has occurred, i.e. Canada and Australia?

Nadeem,

I can see that you trade well. I would be really grateful if you could find a bit of time to respond to the questions below.

May I ask what buy triggers do you use to get into a position. You mentioned above every time the DOW went below 11k you bought stock.

However, in one of your earlier articles in March 2009, buy signals were triggered on each resistance (e.g. new high). It seems you adopt one strategy after a bear market crash a(see "Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470") and another after bull market corrections? Please could you explain how you determine your buy entry levels once and for all please.

Furthermore, I too, am confused as to your stealth bull market terminology. Some commodity stocks fell over 60% recently (e.g. Vedanta) yet you say we are in a bull market and this was just a correction. If this is true, please could you explain the reasons why commodity stocks are still in a bull market. A chart explanation would be very helpful. Also, some european indices and FTSE 100 seemed to go below very important support levels (FTSE closed above, but went below intraday). I never thought this could happen with a correction as I thought corrections were between 10-15%. Does the fact that some of these markets "corrected" much deeper than expected worry you?

Lastly, I just wanted to say a big thank you for helping people with your analysis. I won't bother you again if you were to respond to the questions above as this is all I wanted to know.

Thank you so much.

James

Hi All

John / Christian

Yes there is heavy overhead resistance from about 12,500 which implies the Dow will react lower / mark time before breaking higher.

Bull / Bear - My conclusions are based on the sum of my whole analysis, so there is no single indicator, analysis answers questions all of which contribute towards strong conclusions, and my overwhelming conclusion during the summer correction was that it was just that a correction, so a great buying opportunity, that's not to say that one day I will get it wrong at the end, because at the end of the day it is a question of probability, for instance I put the bull market continuing during the worst of the crisis at about a 75%, so still a significant chance of being wrong.

The closer probability gets nearer to 50/50 then the less long exposure I would seek to have, the same holds true for probability of corrections starting after a strong bull run, if the market is overbought then the probability for a significant correction is increasing so the long-term investments must be hedged to some extent i.e. by shorting the weaker stocks.

KEVIN

Commodity stocks - I will include this in an future article.

MARTIN

Housing will be specific to UK, but I will also take a look at US and Japan, it takes a lot of work on the state of the economy before I even get to look at the house prices.

JAMES

You appear to be confusing stock index futures trading and investing.

YES, stock index futures trading is based on buy and sell triggers because it is ultra-short-term high risk position trading.

Whereas stock investing is for YIELD, I don't care about the price, all I want to do is to lock in a high yield in a dividend growing stock, really this is the secret to long-term investing, which is my primary focus, I have been using index trading for a decade now more for short-term stocks portfolio wide hedging than how I used to trade in my earlier years.

For instance I have investments dating back literally 20 years ! Never mind the capital gain, some these investments are giving me over 20% YIELD on my original investment!

So time you're buying for 6% then watch it give you perhaps 10% in 10 years, 20% in 20years PER ANNUM on top of capital gain.

Stocks - As you can see individual stocks have much volatility, I counter this by use of hedging strategies but my analysis is mostly on the indices. Also intra-day does not count, there is a LOT if high frequency trading that takes place that generates much intra-day volatility, something I have iterated several points over the years.

Best

NW

Hello Nadeem

When it comes to selecting individual stocks for the long term, what selection criteria(s) do you use?

Best regards

Jas Singh

Hi Nadeem -

Thanks for your update; great insights as usual. Your point about shorting weak stocks addresses my previous question about holding a higher percentage cash / going defensive. In my view they both accomplish the same objective (if managed properly).

Not to criticize - because I believe you've been highly consistent and mostly right - but I feel that in the interests of transparency it should be mentioned that your stance in June/July didn't call for defensive cash / shorts. Your call (if I remember correctly) was to keep buying in anticipation of Dow 14,000+. The right call would have been one of: market looks overbought, better to protect with more cash, shorts, etc... and wait for a better opportunity later this year. If one employed that strategy, he/she would have had chances to buy in at levels 10%, 15%, even up to 20% lower (for the lucky) than what we saw in June/July.

reference your 13 June article:

http://www.marketoracle.co.uk/Article28641.html

For my personal account, I didn't take any defensive actions in June/July because I didn't anticipate a Tea Party / grade-school driven standoff or the recent EU deadlock. As a result, I bought as the market collapsed (at 10, 15 and even 20% lower) but was pretty much fully vested by Sep (down to a meager 10% cash reserves) and quite nervously waiting for politicians to get their act together. Needless to say, it's not the most comfortable position to be in, and I have since banked most of the profits taken on positions accumulated during the Aug-Oct period. So I am now still happily long for the LT, but at a much lower Dow equivalent level and with an even higher cash buffer than in July.

I am on the same page with regards to your LT view, however some of your short-medium term views have failed to highlight significant risk factors. (some stuff obviously can't be foreseen like the Japanese earthquake/tsunami)

Some other examples - and let me highlight again this really isn't meant to be a criticism, since I totally get that it's a probability game and it's admirable you even attempt to follow so many different markets... But going off some of your calls early this year, China has severely underperformed (I recently accumulated the index at 30% below what I bought early this year) - if anything I should have been shorting China short term against my Dow/S+P/Nasdaq longs, the GBP hasn't hit 1.70-1.80...

In any case, this is all meant to just point out that for most people, a correct long term view is great and all, but the short-medium term is perhaps equally (or even more) important.

Thanks for your great work - right or wrong, as long as you remain consistent, I will continue to read!

Eric

Hi Eric

my stocks portfolio has been accumulated over 2 decades, and I add when I see an opportunity, and aim to bank at least 100% capital gainson each investment (Income extra on top).

The June sell off of a few % did not perk my interest, later analysis confirmed expectations of a much weaker market into late Sept / early Oct, which did perk my interest.

If I don't see any roadmap that could result in 100%+ then I am reluctant to buy. I need to be able to visualise how the stock or market will get to 100% within a reasonable time frame.

My portfolio's first annual goal is to beat real inflation approx 6%

My second goal is to average 12% per annum.

So individual articles with basis for expectations of 5%-10% volaitlity in indices, don't effect much change on my portfolio, yes, crashes and soaring prices do.

Best

NW

Nadeem,

Urgent:

In light of the ongoing european debacle, do you still see DOW and FTSE new highs by the end of the year? If so, why is this? On the one hand you warn of possible bank failures and people losing money above £85k and on the other hand you mention the fact that europe is not addressing it's problems. How then can you justify new highs by the end of the year with all this uncertainty? Which takes precedent - a chart (T.A.), or ongoing real events?

Not so urgent:

Also, if you invest in stocks (high dividend yields) for the long term, where do you place your stop losses. Are they placed at significant support levels or a certain percentage away? If no stop losses, then how do you limit the risk of a company going bankrupt and this losing everything?

Thanks

Jason

Hi Jason

My last analysis (early Aug) concluded in the trend expectation, so far the market has not done anything contrary. I will update when time permits, but I want to know housing first.

In terms of the bull market, many stocks are still dirt cheap, just as cheap as they were in March 2009!

You can get yield of more than 5%, twice government bonds! Your not going to get stocks as cheap as these for long! Either bond yields rise or dividend yields fall, or probably a mix of both.

Stocks & commodities are approx 1/3rd of my portfolio and are very high risk, which is fully understood to be so. Whereas Cash is supposed to be ZERO risk, instead it is NOT zero risk so requires special measures to reduce the risk towards zero.

I can afford to be wrong on stocks, but cannot afford to be wrong on cash as well, so cash has to be near zero risk to balance out the high risk stocks and commodities. One can only analyse accurately and invest calmly and rationally if one is not affected by the risk, and I find myself worrying infinetly more about the cash in the bank than any thoughts concerning yo-yoing stocks, which is not good!

Remember companies PAY you to take risk with your capital, Banks DON'T pay you to take risks with your cash!

It's just not worth the risk and I want to dump the cash into other hard assets of which the only one that I am not exposed to is housing, hence why my thoughts keep wondering back to housing, I would much rather be early by a year and 10% or so then continue with the risk to cash.

Stops depend on the individual stock and range from between 33% and 10%, and some with no stops such as UU, BG, Centrica, GSk, BATS, TATE, infact a good 50% of my stocks have no stops, usually stops are on those positions I am not entirely sure about, so would not mind being kicked out of the position.

And yes there is always a risk of losing on stocks, especially if they go bust, but more often 100%'s out bank the 0% bankrupting stocks.

Best

NW

Thanks Nadeem for replying.

May I ask whether it is possible to use the same buy signal methodology to stocks (or currencies) as you would with regard to the indices (e.g. buy on higher highs or when a stock passes a certain resistance level), or do you think individual stocks are just too volatile to do this?

It just seems a bit hit and miss if one were to buy a stock when the dividend is around 6%. Don't get me wrong, I think this is a great idea, but is there a more technical way you could suggest in determining a buy signal on a particular stock (e.g. a technical trigger), if you don't mind? In all your experience, what buy triggers in individual stocks or currencies do you believe to give you the greatest probability of success? I ask because there is so much B.S. out there and you seem to be refreshingly honest in your approach, which I greatly respect. I ask also because the spreadbetters I use always seem to stop me out despite having stops below support and certain pivot levels. I am beginning to think the whole thing is rigged!

Perhaps, investing in stocks directly (rather than using spreadbetters or "bucket shops" - jesse livermore) is a better way to go?

Lastly, I had a quick look at some charts on the FTSE and it seems to suggest that it has fallen to a significant support level today (i.e. resistance becomes support). Let's see if this holds and climbs in the days ahead, shall we?

Good luck with your house purchase. It seems the whole world is digitally printing, so I am sure you'll do well - at least nominally.

p.s. please bring out that e-trading book as soon as you can. I would rather take some lessons from you than the many sharks out there drumming for business.

Thanks Nadeem. I would be grateful if you would.

With all this inflation being caused by central banks, it baffles me as to why these commodity stocks have sold off so viciously. You would have thought people would be desperate to own a mining company i.e. real assets.

Is this another case of manipulation by the likes of the primary dealers (e.g. JP Morgan, Goldman Sachs etc.)?

Best

Kelvin

Nadeem,

Do you still believe we will witness new market highs this Christmas in light of this ongoing european debacle?

I seriously doubt it.

Best,

Jason

Hi Jason

Looking at the charts, I see nothing much has changed, all that your listening to is very loud mainstream press crisis noise.

I will write on stocks soon, but, I don't see any reason to do so. So far were just correctign the preceding rally that caught the perma-crash crowd off guard only to re-emerge on todays plunge.

I am more focused on the bankrupting Euro-zone because Europe is not somethign I usually pay much attention to as my portfolio has little exposure to Euro-disney-land.

So, yeh its down 400 today, tommorrow it may be up 400, then what ?

Best

NW

Thanks very much Nadeem for responding.

I suppose you're right. I have been caught up with all the noise lately. It's hard to discard everything that is going on right now!

How do you determine when the dow is not going to go to new highs? Does it have to fall below a certain technical level (e.g. last major low)? If so, could you tell me what level this might be without going into too much detail or trouble. I can then look it up myself on a chart and try and understand your reasoning.

Also, I was really hoping if you could explain how you enter a trade (i.e. how do you determine your entry points on a technical basis e.g. daily, weekly, monthly charts) or do you use something else to determine your entry and exit points.

I am finding it really difficult choosing a method to enter and exit trades successfully in different markets. Is there a difference trading indices to stocks or foreign exchange or can the same method be used for all trades? If so, can you recommend a basic method which has a reasonable edge?

As always, many thanks for your comments Nadeem.

Best

J

Hi Jason

Trading is different to investing.

I will write a book, because its not just the entry / exit its whether to trade or not to trade. Remember the markets generally only trend about 1/3rd of the time, so knowing when NOT to trade is very important, something I can't recall reading much about, guess everyone is pushign people to trade i.e. brokers, service sellers ?

Best

NW

Hi Nadeem,

I've given a lot of thought to your replies and your posts and I just believe politicians are incapable of solving this sovereign debt debacle. They are only interested in saving themselves.

As such, from an historical perspective, it is likely in the first stage of this financial panic, capital will flow to the USD (deflationary for U.S.). The second stage will show capital flows into all assets (moveable and then fixed).

Therefore, IMHO I would expect to see stocks, commodities (and gold) decline in the first stages (not in China) and then to outperform in the second stage when capital flees all currencies.

As such, market interest rates in America are likely to go lower before moving higher. This is what I believe is confusing so many people.

We do not have a gold standard and confidence in the banking sector is being eroded quickly. I would not like to be holding vast amounts of cash in the banking sector right now. Unfortunately, people do not look at things on a global perspective, or as traders. Markets will continue to attack the weaker states and capital will flee to perceived safe havens. This is how it has always been.

Governments and banks are desperate for "other people's money". I would humbly suggest, you don't give them yours!

Best,

Kevin, London

Only be prepared to buy a market if it is up on the day

Only be prepared to sell a market if it is down on the day

Hi Kevin

So far there has been no deflation, in fact the opposite, at the end of the day the trend remains the same, bankrupt banks bankrupting countries that will print money and stealth default on their debts, which means high inflation.

The PIIGS are differend they cannto print so the ECB WILL print and monetize / write off their debt.

But what no one is talking baout is the BOOM ! DEFAULT WILL RESULT in an economic boom that is proportionate to the degree of default. I.e. 90% default would result in very strong economic grwoth.

UK is stealth defaulting so its stagflation, Greece is defaulting at 90% so it should be booming within a year, once the default goes through, more on this in my next article, though the fast changing events mean I have to keep editing!

As for markets, when stocks are cheap no one wants to buy when stocks are expenseive everyone will want to buy, I last accumulated approx 15% again, when will others buy ? when its another 15% higher?

Stocks are cheap, the reason they are cheap is because volatlity and uncertainty is high, but they won't stay cheap.

Best

NW

Hi Nadeem,

Why hasn't the inflation not translating into high interest rates? I thought these go toghether?

Since you have your eye on entering real estate, would you consider mortgaging a variable or fixed rates?

I presume that in times of inflation one should borrow as much as possible, and not only invest your cash, but also invest the cash you don't yet have. Is this correct?

Thanks,

Sy

Hi Sy

Two reasons why

The conclusion of the mid march 2011 interest mega-trend ebook still stands in that the Bank of England remains paralysed by fear of financial armageddon and therefore reluctant to raise rates.

And secondly because the government wants to hit you over the head with an inflation sledge hammer to spend your savings else it will fast lose value, so as to increase the velocity of money and devalue the debt mountain.

Best

NW

Hi Nadeem,

I do believe that market is poised to go higher but as mentioned by Jason in a previous comment how does it cope with the higher probability of several European banks going bankrupt?

Could we witness a flash crash?

Or should those bankruptcies never materialize with the help of the re-capitalization and higher inflation?

Best regards,

Carlos

Bankruptcy is necessary for capitalism to work.

Its the socialism of bailing out the bankrupts thats destroying the west, the longer bankruptcy is delayed the greater the eventual cost will be.

Investing is managing risks by hedging, you commit to a trend then monitor hedges that fluctuate on the basis of risk.

Either that or its all sat in cash with a 100% certainty of loss of value curteosy of inflation.

As someone asked earlier about housing, housing is a hedge, its a hedge against inflation, you could call it a put option on fiat currency.

Always think what you should do to hedge your portfolio rather than convert it to cash which is a certain loss.

I have to have exposure to stocks because it gives me a return greater than inflation, I also have to hedge it which costs or rewards depending on what transpires.

I will need to get around to writing a book, because people want to read the wrong thing, i.e. forecasts when that's not so important, what is most important is managing risk, not on being right, because you can be wrong but still make money if your hedges are good.

For instance look at the bond market, go back a couple of years and there was little difference between Greek and German bond yields, so you go long German bonds and hedge it by shorting Greek bonds, and you didn't have to be a genius to realise that Greek is not germany, so that was a great hedge to put on against a sizeable long position on german debt.

As it turns out even if german bonds had fallen (which they have not), you would have made a fortune on the Greek debt anway.

Thats just one example where forecasting does not matter, but thats what people want, read the comments, its all about wanting a trend projection for x,y,z, market when thats not actually how to make money.

Instead think, this is my position, now how do I hedge it ?

Or better still you always put a position on with a hedge.

There are so many great hedges out their which I will mention in my next article.

Best

NW

Hi Nadeem,

Thanks for your insightful understanding.

Since us both agree the stock market is a necessary tool that protects a portfolio against inflation. How do we hedge ourselves?

By buying treasuries?

or

Buying derivatives like options that are costly for an individual investor?

or

Buying Gold?

And even there are we not adding risk?

Instead of investing in the stock market is in it better to buy Gold as it’s the ultimate hedge against inflation (no one can print it and its no one else’s liability)? I don’t take those words has the ultimate truth but instead I look at gold since 2000. I can’t argue against such evidence!

If yes, what kind of hedge would hedge Gold?

Regards,

Carlos,

p.s. I am from Canada. The situation here seems to be different from what is actually happening in the U.K. (inflation, upcoming bankruptcies) but I believe it’s just a question of time.

Hi Nadeem,

With an imminent credit crisis on the cards (inside source) and the Governor of the Bank of England's dire warnings on the state of world growth over the next year, do you still stick with your view that stock markets will rise much higher by the end if the year?

I would be interested to read another article on stocks, commodities, QE and growth if you have time. The Governor thinks inflation will fall to now 1% by 2013/2014. How credible do you think this is?

Thank you.

Regards,

Kevin

Hi

I will do a series on inflation and stocks, but the inflation forecast proper for 2012 won't come until near end of this year.

The articles are compiled from ongoing across the board analysis, which does not match the BoE's expectations.

Best

NW

Hi Nadeem,

What is going on in Euroland? Will Germany leave the euro, or will other PIIG nations devalue or possibly leave instead. Do you think we are heading for another credit crunch.

Any thoughts would be appreciated.

Thank you.

Jack

Hi Nadeem,

I think you have made some excellent calls in the past few years Nadeem (not GDP/USD or interest rates) and I highly respect your analysis. It has been a while though since you last submitted another one of your articles, which is a pity. I look forward to reading your articles more so than many others, so please keep it up. Thank you.

However, I think you are wrong with regard to new stock market highs by the end of this year. Sorry. On a technical basis and individual stock basis, the markets are screaming lower lows. I have analysed a number of the indices and a number of FTSE 100 inflation proof stocks and the short term trend is most definitely down. Sorry, but I trade the reality not hope.

As far as hedging is concerned, what would you advise stock investors to be doing right now when they bought (too soon i.m.h.o) into stocks during the summer doldrums dip a few months ago? I am also critical of Adam Hamilton's short term analysis too. I think he is wrong this time, although "Eve of a bear" back in 2007 was spot on.

I would be staying out the markets right now and being prepared for some screaming buys in the not to distant future. For those that can move, I would suggest Asia is the place to be for the next few decades. As we deteriate further, so do our freedoms and liberties as these corrupt Governments further there attacks on "other people's money"

Yours,

Kevin

Hi Nadeem -

Another month, another rally and another correction.

Just curious if you've adjusted your probability for new stock market highs before the end year?

It's not looking pretty - I'm not convinced that we're looking at an imminent short term recovery at this point. Keep in mind that even within your multi-year inflation outlook, we could see a hefty 6-9 month (into March 2012) downtrend. I personally don't want to be on the wrong side of that.

No matter what I am planning to maintain a core long, but am currently not viewing the recent dip as another buying opportunity because this market looks weak. I think the odds of a retest to 10,400 Dow or lower are about 50/50 at this point. Not exactly compelling ...

Thoughts?

Eric