Gold Breaks Down, Where to Look for a Bottom

 

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

Gold fell and closed below its 200-day moving average yesterday, December 14th. This indicates a technical breakdown and the last time this happened was in August 2008. Gold bottomed approximately 30% off its high three months later in November.

Any analysis of an investment's technical state should begin with the big picture, so recent events can be put in context. Gold is in a secular (long-term) bull market which will last until approximately 2020. This means that the greater trend will move prices higher over time. No market moves straight up however. There are always reversals in a secular bull market and these are sometimes steep. The 1987 stock market crash which took the U.S. indices down 40% and some individual stocks down 70% or even 80% took place in a secular bull market that lasted between 1982 and 2000. Stock prices went to new highs after the crash despite many pundits claiming the crash meant a new depression was coming. Anyone who realized stocks were in a secular bull market could easily have predicted stocks would recover.

Even though gold has dropped below its 200-day (40-week) simple moving average, this does not indicate that it is even in a short-term bear market. At the very least the 50-day (10-week) moving average would have to fall below the 200-day to indicate that. Gold will have to trade below it's 200-day for approximately the next two weeks before that would happen. This did indeed occur in 2008, when it could be said that gold experienced a brief cyclical (short-term) bear market.  The 10-week moving average traded below the 40-week for about four months from September 2008 to January 2009. See a four-year weekly chart of the Gold ETF GLD below.

The bearish behavior of gold in latter 2008 was caused by the Credit Crisis. While you have probably heard ad nauseum that gold is a safe haven in a crisis, this does not include credit crises
(which are crises in the financial system when the banking system has difficulty functioning). We just saw that gold went down during the 2008 credit crisis and yet many gold "experts" somehow can't figure out that it should go down during the current 2011 credit crisis coming out of Europe. In our era, gold can drop during a credit crisis because central banks lease gold at low rates to the big banks and hedge funds. These entities are desperate to raise cash, so they sell the gold into the market (they can't sell many of the assets on their books). This depresses the price of gold -- temporarily. But at some point, they have to buy the gold back and return it to the central bank it was leased from. This makes the price of gold rise again. I explained the entire process in the second volume of my book "Inflation Investing", which covers gold, silver and other metals.

Gold has support at the 65-week simple moving average, but this is not the likely bottom in a full-blown credit crisis.  In order to find that, it is necessary to look at a monthly chart. It can be seen from this that the ultimate support would be at the 40-month simple moving average. Currently, this is around 120 for the gold ETF GLD. This possible buy point, which should be considered a worst-case scenario, was discussed in the October meeting of the New York Investing meetup. See the five-year monthly chart for GLD below.



It's important for investors to focus on the big picture and not get carried away with all the distractions of day to day price movements. Markets go up and down. No market goes in one direction. Every time gold drops, commentators come out of the woodwork saying it means the rally is over and deflation is taking place -- neither is true. It is the bigger price movements that have meaning and gold is in a long-term uptrend. In any secular bull market, a large drop is always a golden opportunity to buy. Just wait until there is some evidence that a bottom has been put in.  

Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York
Investing meetup http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

This Week's Selling Indicates Bear Market Still in Play

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


All four major U.S. stock indices began to form a bear market trading pattern during July. The rally that started early in the month paused the formation of that pattern, but didn't reverse it. Then the selling this week added more evidence that stocks are in a bear environment.

The most basic definition of a bear market is a 50-day moving average trading below the 200-day moving average for one or more stock indices and the 200-day moving down. Frequently, people only look for this pattern on one index such as the S&P 500, but that isn't enough. All the major indices - the Dow Industrials, the S&P 500, Nasdaq and the Russell 2000 - should have this pattern before a bear market can be declared.  You might also add the Dow Jones Transportation index to the list as an additional confirmation.

In early July, the simple 50-day moving average fell below the 200-day for both the S&P 500 and the Dow Industrials. Then in the middle of the month the same thing happened on the Nasdaq chart. By the end of the month, the Russell 2000 also experienced this cross (sometimes referred to the cross of death by technical analysts). However, stocks had been rallying since early July and the Russell's cross was very tentative. The 50-day barely dropped below the 200-day and then traded in tandem with it for two-weeks. The selling this week put some space between the two lines and prevented the 50-day from rising back above the Russell's 200-day.

So the 50-day crosses are in place for all the four major stocks indices. The falling 200-day moving averages are still missing however. This line is still rising, although just barely, for the Dow Industrials, S&P 500, Nasdaq, and the Russell 2000. Watch for the 200-days to turn down. The 50-day has also not crossed the 200-day on the Transportation Index. When this happens and the 200-day moving averages start declining, the bear market picture will be complete.

While a large number of economic reports for the last two months have shown a faltering U.S. economy and the Federal Reserve has confirmed that things look gloomy, stocks nevertheless managed to rally for 5 weeks in July and early August. Investors should keep in mind that there is a major election in the United States in early November. Other hard to explain bullish rallies are therefore possible until that time, so be prepared for anything. Reality eventually triumphs in all markets however and that favors the bearish view.
   
Disclosure: No positions

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Why Investors Should be Cautious on Gold and Silver

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


While U.S. stocks peaked in late April, silver peaked in mid-May and gold in late June. While the S&P 500, Dow Industrials, and Nasdaq have all given bear market trading signals, neither gold nor silver have done so. The technical indicators for both metals are deteriorating however and more serious drops could lie ahead.

Gold and silver are unique in that they are monetary metals and the market treats them as currency subsitutes. The is more the case for gold than it is for silver. Of all the metals, gold has the least industrial use. Only about 13% of annual output is used in manufacturing, mostly for electronic products such as cell phones and computers. Gold is not useless as many commentators claim, unless you live like the Amish. Silver, on the other hand, has a greater industrial role with 50% of its production being used for this purpose. Silver will therefore be more strongly impacted by economic developments than will gold.

Both gold and silver are still trading in a bullish chart pattern with their 50-day simple moving averages above their 200-days. Their technincal indicators though have turned negative on the daily charts. Most have moved below the point that divides bullish from bearish action. The trend indicator DMI (directional movement index) gave a sell signal for gold (GLD) in early July around the same time that the more serious bear market signal took place on the S&P 500 and Dow Industrials. Yesterday, the price of silver (SLV) closed below its 200-day moving average. Gold is still trading above this key line.

In the long-term, gold and silver will prove to be two of the best investments in the market. This doesn't mean that they will go up every day or that they can't have significant reversals. A double-dip recession will certainly be a negative for silver prices, although perhaps less so than for copper or other industrial metals this time around. If silver starts to trade consistently below its 200-day moving average, it too will be giving a bear market signal. It is still too early to tell whether or not gold will follow. A price drop  to the 200-day moving average, currently at 111.61 and rising for GLD, is almost certain at this point though.

Disclosure: No Positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Nasdaq Gives Bear Market Signal

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


As the mix of good earnings and weak economic reports continue, Nasdaq gave a bear market trading signal on Wednesday. It joined the Dow and S&P 500, which gave their own sell signals earlier this month.

While the technical picture for the market has improved somewhat after seven days of rally, the rally didn't prevent Nasdaq's simple 50-day moving average from falling below its 200-day. The Nasdaq closed at 2249.84, its 50-day fell to 2251.39, and its 200-day was at 2254.88. This means Nasdaq is also at a strong resistance point that it needs to break and stay above. Trading in the next ten days will determine if the Nasdaq continues to fall apart (and the rest of the market with it) or manages to turn around with a rising 50-day average. The recent rally has taken place with below average volume on Nasdaq every single day. The volume on the Dow Industrials was even weaker. From a technical perspective, this is another negative for the market.

Mixed news for the economy and earnings continues. JP Morgan reported a 77% Q2 rise in profits. Mainstream media accounts explained that "a slowdown in losses from failed loans helped offset a difficult spring in trading and investment banking". Huh?  Makes you wonder who does their numbers. Anyone who happens to believe that the big banks earnings reports have anything to do with reality should recall that Bear Stearns in March 2008 was rushing to get its positive first quarter earnings numbers out early, but the company went under before it could release the good news.

Meanwhile, the weekly unemployment claims rose last week, but the Labor Department reported they fell by 29,000. Huh? Makes you wonder who does their numbers. Apparently the magic of seasonal adjustments led to this 'sows ear as silk purse' news. Automakers aren't closing down for their usual summer retooling this year. Based on recent reports, there is no evidence that business in the sector is so good, or even good at all, that they can't afford the down time.

Industrial production figures in the U.S. were up by 0.1% in June. The number was only positive because of a big increase in utility output caused by increased use of air conditioning during the unusually hot month. Consumer goods seem to have been down across the board. As a reminder, consuming spending was 72% of the U.S. economy before the Credit Crisis hit. Business and industrial equipment were up, but it is likely we have exports to China to thank for that. The Chinese economy expanded by 10.3% in the second quarter, but this was below expectations. Even at the bottom of the Credit Crisis Chinese GDP was up over 6%. It was down by almost that amount in the U.S. The economy in China seems to be slowing and if this continues, watch out below.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Stocks End Q2 Giving Another Sell Signal

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


After Tuesday's sharp drop, it would be reasonable to have assumed that U.S stocks could have at least had a dead cat bounce. Not only didn't the cat bounce, but prices fell even further confirming a head and shoulders top on the S&P 500. Even worse, a more important sell signal will be given by Friday when the S&P's simple 50-day moving average falls below its 200-day. This is a classic bear market confirmation. The first of the month indicator already confirmed a bear market in early June.

While it looks like there's much worse to come for stocks, the second quarter was bad enough as is. The U.S. stock market was in a correction no matter how you measure it. For the quarter, the Dow was down 10% and the S&P 500 and Nasdaq were both down 12%.  From their highs on April 26th to their lows on June 30th, the Dow, the S&P 500, the Nasdaq and the small cap Russell 2000 were down 13.9%, 15.7%, 17.0% and 18.4% respectively. A market is in correction when it has dropped between 10% and 20% from its high.

A market has entered bear territory once it is down 20%. There is more than enough reason to think that this will be happening soon. Both the S&P 500 and Nasdaq hit their 2010 lows on June 30th. The Dow was only slightly above its low on June 8th. The S&P 500's head and shoulders topping formation indicates a possible additional drop of 20% (based on the work of market technician Thomas Bulkowski). This pattern was confirmed when the S&P 500 fell below 1040.78. Its low on the last day of the quarter was 1028.33. In an article on May 28th, I pointed out that this chart pattern was in formation. Well, now it has been confirmed and is providing one more piece of evidence of a market prone to selling.

U.S. stocks already started a bear trading pattern when the major indices sold off during the first four trading days of the month in both May and June. An article I wrote on June 6th detailed the specifics. The next confirmation will be the simple 50-day moving average crossing below the simple 200-day moving average. This will take place for the S&P 500 this Friday, if not today. The ultimate and final confirmation will be given when the 200-day moving averages for the major indices start heading down.  They have been flattening out and trending sideways lately, so this too will be happening soon.

The technical picture for the major U.S. stock indices is not only negative, but is getting worse. The market is dropping just ahead of the sharp and sudden deterioration of the economy that is beginning to show up in a number of places. The upcoming bear market though is likely to move faster than the previous one that lasted 18 months from peak to trough. Traders will love the volatility. Investors should wait for the signs of a bottom, which will offer them many opportunities for major profits.

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Quadruple Witching Tops Off Weekly Trading

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Friday was a quarterly quadruple witching day with stock options, options on futures, single stock futures and index futures all expiring. While volatilty frequently takes place on expiration days, this one was uneventful. Expirations can move markets starting days before however, with prices tending to move in the opposite direction of their recent trends during the week of expiration.

The week of June 14th was bullish for U.S. stocks, the euro, oil and gold. The euro gained 2.7% on an oversold rebound. Gold hit a record high, with GLD closing up 2.5% on the week. There was little difference though between gold's performance and that of the major U.S. stock indices. The Dow rose 2.3% on the week, the S&P 500 2.4%, the tech heavy Nasdaq 3.0% and the small cap Russell 2000 3.2%. Oil was a much bigger winner than gold, gaining 5.2% from last Friday's close. The one notable loser was economically sensitive copper, which dropped 1.5% in the last five days.

The euro, stocks, gold, oil and copper have very different technical pictures. On the daily charts, the euro looks very bearish, with its simple 50-day moving average well below its 200-day. The euro is moving up because of 'regression toward the mean'. It went down too far in too short a period of time, so it is trying to return to a trendline. The trade-weighted U.S. dollar has a mirror image picture. It has gone up too far, too fast and is coming down for that reason. Many oil ETFs/ETNs, including OIL also have their 50-day trading below their 200-day, but it is not nearly as pronounced as is the case for the euro.

U.S. stock indices are still in a bullish pattern with their 50-days above their 200-days, but the 50-days have been fallen particularly for the Dow and the S&P 500. The Russell 2000 is in the best shape of the indices. All of the indices are trading above their 200-days, but below their 50-days. The Dow and S&P 500 spent 18 days in a row below their 200-days in the last month though. Stocks can be characterized as clinging to a bullish pattern. In contrast, Gold is unquestionably bullish, trading above both its 200-day and 50-day and its 50-day is well above its 200-day. Next week could be critical for whether or not gold's rally continues based on patterns forming in its technical indicators.

Copper is changing from a bullish to bearish trading pattern. It's 50-day is touching its 200-day and will fall below it on Monday. This is a classic bear signal. Since copper trades with the economy, its behavior is supporting the possibility of a global slowdown and a double-dip recession in the United. Investors should watch copper closely. If it continues its bearish trading pattern, assume a recession could show up as early as this fall.

 Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Fed Sends a Message With Discount Rate Hike

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


The U.S. Fed raised its discount rate after the market close on Thursday, February 18th. The rise in rates from 0.50% to 0.75% was characterized by the central bank as further normalization of the Fed's lending facilities. While the Fed's discount rate action is mostly symbolic, it raises the question of when the historically ultra-low fed funds rate will be normalized. As would be expected, the U.S. dollar rallied and gold sold down on the news.

The discount rate is not an important factor in control of money supply, but is the Fed's mechanism for getting money to banks when they are in crisis, either individually or because of a systemic shock. During the Credit Crisis the Fed created a number of new programs to temporarily accomplish this goal. Five of those programs were ended on February 1st. Another one, the TAF (Term Auction Facility), will have its final auction on March 8th. Prior to the Credit Crisis, the discount rate was usually a full percentage point above the fed funds rate. Even with the recent rise, it is only half to three-quarters point higher. We are still not yet back to the way things were pre-Credit Crisis. Fed Chair Bernanke has been saying the U.S. banking system was fixed for many months now. If that is the case, why has he waited so long to get the Fed's operations back to the way they have been historically when there is no crisis?

The last time the Fed began a major policy change was with a move in the discount rate. The Fed first cut this rate by 50 basis points in August 2007. One month later, it started lowering the fed funds rate and continued doing so until instituting its current zero to 0.25% rate policy in December 2008. While Bernanke's signature approach is to change the discount rate first, the time lag is likely to be longer than one month this time. Members of the Open Market Committe may already be losing their patience for ultra-low rates however. The Kansas City Fed Governor dissented at the January meeting on the fed's message of "exceptionally low levels of fed funds rates for an extended period". He wanted language that indicated something briefer.

Higher U.S. interest rates are of course bullish for the dollar. Although the U.S. will have to raise rates by 0.50% to be higher than Great Britain's rates, by 1.00% to outdo the euro zone, and by 3.75% to challenge Australian rates. The U.S. trade-weighted dollar continued its rally on the Fed news and is flirting with nine-month highs. The euro on the other hand fell as low as 1.3443 on the news. Technically, the dollar confirmed its rally with the 50-day moving average moving above the 200-day - a classic buy signal.  The euro has the opposite chart pattern and the 50-day average having dropped below the 200-day earlier this month. Gold held up better than expected. February is a month of strong seasonal buying for the metal and this has provided enough buying pressure to prevent significant drops for now.

Disclosure: No positions.

NEXT: Greece's Statistical Lies - Are the Numbers Any Better in the U.S.?

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Market Getting Frothy; Meeting tonight for New York Investing

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The stock market indices were all up over 2% yesterday. Nasdaq crossed its 200-day moving average and closed 13 points above it. We are now at the point where many stocks have had substantial rallies and are moving up sharply. Watch out when this happens! While the average person wants to buy when this occurs, unless you are a short-term trader, selling is the more appropriate reaction. Stocks that are floating 20% or more above their 10-day moving averages should be considered particularly worrisome if the stock has been in rally mode for some time (if it is moving sideways in a base that's another story).

A good general rule of thumb is to sell at least half of your position when you have 100% profits. That way you can't lose. If the stock is also around an important resistance point and the technicals are at overbought levels, you probably wish to sell all of it. Sometimes for severely oversold stocks, especially low-priced ones, the stock can move up 100% and still be in a base and in this case you should NOT be selling (DXO and HWD would be examples of this). The sell rule is only valid for a stock that has been rallying. A lot of money is lost in the market because profits are not taken. Many sell offs take place gradually, so any given trading day doesn't raise an alarm bell. Taking profits is tricky and there is a tendency to sell much too early or much too late. However, don't aim for perfection - this leads to trouble. Your goal should not be to make the maximum amount of profit possible, but a reasonable amount. What is reasonable depends on your time frame. A couple of percent is good for a day trader, but meaningless for Warren Buffett.

An important part of the art of selling is to have a good idea of overall market conditions. We are still in a rally. Currently, there are reasons to think this rally will continue into June. After that, the probabilities are likely to turn against the market. When the market turns down, most stocks will go with it. Oil might last a little longer because of its seasonal trading pattern. There are a few things, like natural gas (UNG), that are still bottoming and haven't rallied yet at all. Gold (GLD) and silver (SLV) frequently trade counter to the market and should be rallying while most stocks are selling off. There are always opportunities in the market.

Tonight, May 5th, is the monthly meeting of the New York Investing meetup. I will be interviewing William Cohan about his latest best seller, "House of Cards". Cohan will be signing his book after the interview. There will also be a talk on the state of the market. The meeting starts at 6:45PM and will be held at PS 41, 116 West 11th Street.

NEXT: NYIM May 5th Meeting; Oil Report; Swine Flu Update

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Market At Key Resistance; Scamdemic Update

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

While it looks like Chrysler declaring bankruptcy weighed on the market yesterday, the selling from the intraday highs has a technical explanation. During the day, the Nasdaq reached 1753, almost hitting its 200-day moving average of 1756. This is always an important resistance point in any bear market rally. The Dow itself traded as high as 8307, a price where there is significant chart resistance. While some selling should be expected soon because the market usually can't just break through strong resistance immediately, I think the Nasdaq will manage to break above its 200-day after awhile and the current rally will last until the Dow and S&P 500 reach theirs. As of today, the Dow's 200-day is at 9077 and the S&P 500's is at 964 (the S&P's high yesterday was 889). All the 200-day's are falling, so you need to check where they are every now and then.

One thing that has not made the market go down, to its credit, is the mainstream media misinformation campaign about the current swine flu outbreak. While any rational assessment indicates that this is much ado about nothing and this version of flu is probably the least serious that ever existed, health care officials from WHO, the U.S. Health and Human Services, the CDC and the New York Health Department have done everything possible to fan the flames of hysteria and engender panic among the global populace. The media has been a more than willing accomplice in this endeavor. Moreover, this is not the first time this has happened. There was also a major swine flu scare in 1976 created by the U.S. government. That epidemic never materialized.

Having much experience deconstructing investing news for its intent to mislead the reader, it was easy to see immediately that the supposed dire situation with the current swine flu outbreak was all a bunch of hype. Let's examine the actual facts of what is taking place:

1. No one outside of Mexico has died from this disease. The one case of a death reported in the U.S. was for a toddler who was a resident of Mexico City and was brought to the U.S. Furthermore, he had other significant underlying health problems that the medical authorities refuse to reveal. Did he die from those instead of the flu? Quite possibly.
2. As for the supposed deaths in Mexico from swine flu, which is the basis for the pandemic panic, the evidence doesn't support media reporting. Almost from the beginning, the media reported 160 'suspected' deaths (sometimes the word suspected got left out). The figures as of this morning indicate that only 300 cases of swine flu have been confirmed by viral typing in Mexico (less than half of suspected cases turned out to be swine flu). Of these, only 7 people have died. What other medical conditions these seven had that might have contributed to their deaths is unknown and probably will remain so.
3. The danger of contagion seems to be minimal as well. Mexican health workers have so far found only 2 cases of family members of suspected and actual swine flu sufferers who have tested positive for type A influenza (this doesn't mean they have swine flu, but they could).
4. As of yesterday, the CDC had confirmed only 109 cases of swine flu in the U.S. The number of cases plateaued fairly quickly. The average sufferer has had relatively mild symptoms for a case of the flu and has recovered quickly.
5. The U.S. government has committed $1.5 billion of taxpayer money to handle this 'dire' emergency. So someone's getting rich off of it.
6. Based on the actual evidence (not supposition) so far, it looks like you are more likely to be hit by a bus than to get swine flu. Even if you got swine flu, it seems much less risky that the usual varieties of flu that we are exposed to on a regular basis.

While a certain percentage of the public has panicked over swine flu, most people have ignored the hysteria the government officials and the mainstream media are trying to foment. The credibility of both continue to sink - as they should. Perhaps the public is more worried about the gross mishandling of the economy by the powers that be and refuses to be distracted. Unlike swine flu, that's a problem that's not going to go away.

NEXT: Swine Flu Update - Government Scamdemic and the Credit Crisis

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Economic Statistics are Yesterday, Stock Prices are Tomorrow

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The Fed Beige book was released yesterday and the media reported that it saw a glimmer of hope for economic recover in the U.S. That glimmer is not yet showing up in the economic statistics, which are gloomy worldwide not just in the U.S. However the economic statistics are backward looking and usually dated on top of that by the time they are released. While the report may say March, those numbers really might be from February (or even January). Reports of Q1 activity might actually be data from Q4 at the end of the previous year (this became glaringly obvious in the 3rd quarter of 2005 when hurricane Katrina devastated the U.S. economy and the GDP figures for the quarter then came out higher than had originally been expected, but the 4th quarter GDP was much lower). People get confused when the stock market is already going up when the news is at its worse, but this makes perfect sense. The economic news you are seeing may be from two quarters in the past, while the market is being priced for what it it thinks is going to happen two quarters in the future. When making investing decisions you too should always look forward.

To make investing even more difficult for the average investor, the media constantly inaccurately states that the stock market (or oil market or some other market) can't go up until the economy improves. Historical analysis indicates that this is simply not true. Liquidity drives stock prices. The more money available for buying stocks, the more the market goes up - and this can happen when the economy stays in bad shape for a long time. Liquidity almost always revives the economy as well so eventually a recovery takes place there too (a hyperinflationary depression would be the one exception). The amount of liquidity being pumped into the financial system currently is massive by any historical standard. This is going to be reflected in the stock market first and much later on at Starbucks, where you will be paying $50 for a cup of coffee.

No matter how bad things are, markets also can't go down forever. Eventually there comes a point where everyone who is going to sell has sold. When that happens one little piece of even insignificant good news can drive the market up suddenly and sharply (look for this behavior in the natural gas market in the future). This type of rally is short-covering or if it takes place around an important support level (it doesn't have to) will be called technical. For extremely oversold markets like the one we have now, a rally to the 200-day moving average is common. You should certainly consider taking profits around that level. Also watch for stocks or sectors with a lot of stocks that manage to break through and stay above the 200-day. These are the leaders for the future.

History (something completely unknown to most U.S. financial reporters) tells you a lot about how to successfully make money in the market. Go back and read the news from June 1932. You will see the worse economic news imaginable. The U.S. economy and banking system were in total collapse. And the banking crisis didn't finally bottom until the spring of 1933, when many insolvent banks were closed down during the banking holiday, and the system wasn't stabilized until the implementation of deposit insurance in 1934. Should you have bought stocks in July 1932? If you did, you would have made around 100% in a few weeks.

NEXT: Bull Markets Climb a Wall of Worry

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.