Will this downtrend likely continue or reverse?

[JahDave]

That is very good advice if you trade stocks, but I only trade currency,,,,,,,,,,,,,,,,,,,,and I just went long Dollar this week.....................

 

[safvan]

Hi there
Most of this downturn is probably overdone -- I'd expect a small rise certainly next week.

Incidentally you can protect yourself by considering "Boring" companies -- for example whatever the state of the economy people need Cleaning materials, energy, food,medecine etc..

An Economy as resilient as the U.S.A WILL recover (probably is in some sectors).
Unemployment figures aren't unfortunately a very good indicator as

1) They tend to lag behind the REAL ECONOMY

2) A lot of new businesses and technology are much LESS LABOUR INTENSIVE than they used to be -- for example anybody looking at the old pictures of 1000's of men working building the Titanic in the Harland and Wolfe shipyard might be surprised at looking at a modern shipyard - where a lot of the production is totally automated and there are very few actual workers

3) That bugbear of a lot of the technical service industries -- "Offshoring" -- for example a HUGE amount of both the U.S and U.K I.T industry has been totally decimated by offshoring jobs to India etc.

As an Investor unfortunately you have to be "Neutral" on these sort of things and concentrate on the job in hand -- increasing your Capital.

It actually is probably a GOOD time to look for bargains.

My advice would be to look for shares that you consider you WOULD like to hold and then SELL PUT OPTIONS on them

This way you could win THREE times over

1) You get the Premiums whatever happens to the shares

2) If the shares are PUT to you (the share falls to the PUT "Strike Price" ) you get to buy the share cheaper than had you just bought the share in the first place.

If the share starts recovering then SELL some CALLS on it -- you gain MORE PREMIUM and profit also when the share reaches the strike price on the call.

Trading in OPTIONS is often a good way to make money even when the market falls -- 85% of people who BUY options tend to lose so conversely the other side of the coin is that 85% of people who SELL the options must win.

Options can also be traded weekly (see CBOE site for "Weekly tradeable options") so you get your premiums EVERY WEEK and if the share really starts tanking you can get out of the position quickly .

Weekly options expiry every Friday but you can trade from the Thursday for the following week.

Incidentally unless the Strike price falls a LOT below your "PUT" price -- you often don't get "PUT" since Market psychology comes in here -- people don't often want to SELL their shares if they feel they are losing money -- they tend to go for a 100% LOSING strategy --"Ride out their losses". NEVER CHASE LOSSES -- just get out of position and concentrate on Next Trade.

So you can still Win -- you've made on the "PUT" and you haven't had to buy the shares !!!!!

( Trade on US market --UK / EU residents can get an account with OptionsXpress for trading US markets - dealing costs 9.95 USD for shares 14.95 USD for options)

Cheers
jimbo

In the long term I always bullish for the free world. Thats the only way everyone would progress. Corrections will come and go away with time.

 

[new_trader]

You have a very good interpretation of what is going on...............I differ with your opinion because banks are not lending and the public will not borrow right now..................This equates to deflation and a stronger dollar, and a weaker stock market.........I know that Obama wants to keep the markets up until he gets reelected, but I don't think he can...................

I agree and that is why I think there hasn’t been much public participation in the stock market since the global financial crisis began. In regard to your view about the dollar and deflation, I think gold is replacing the dollar as the ‘flight to quality’ asset. The 5 day change for the S&P500 is (-2.2%), the dollar index is (-1.56%) and gold is +1.2%. As for the US raising interest rates, it will only make a difference if real interest rates are positive and is that likely to happen? The USA looks like it might lapse into another recession and has the FED ever tightened when the economy is that weak?

As far as deflation is concerned, when priced in real money (i.e. gold) there has already been deflation. In March 2009 when the stock market reached its lowest point the S&P500 was worth around 0.72 ounces of gold and today the S&P500 is worth about 0.84 ounces of gold, so the S&P500 hasn’t gained much in the last few years, 10 years ago the S&P500 was worth around 4.5 ounces of gold! If you compare the gold to S&P500 ratio from 1950 up until 1971 when the USA was on a gold standard you will notice that whenever the S&P500 costs less than an ounce of gold it is ‘cheap’ in relative terms. It is up to you to determine where you believe those ratios will meet.

Speculating is great fun!

 

[safvan]

that is why I think there hasn’t been much public participation in the stock market since the global financial crisis began.

At this time according to COT reports, public is very bullish. Commercials and large traders have dumped a lot of stock on to them and hence we should be expecting a serious downside move.

 

[new_trader]

At this time according to COT reports, public is very bullish. Commercials and large traders have dumped a lot of stock on to them and hence we should be expecting a serious downside move.

This contradicts a lot of what I read, but we'll see. With such large numbers of people in the US 'underwater' on their mortgages, house price drops to levels not seen since the great depression, real unemployment at great depression levels, I can't see where the US public is getting money from to speculate in stocks.

 

[new_trader]

Articles like this:
http://www.cnbc.com/id/43253175

 

[safvan]

This contradicts a lot of what I read, but we'll see. With such large numbers of people in the US 'underwater' on their mortgages, house price drops to levels not seen since the great depression, real unemployment at great depression levels, I can't see where the US public is getting money from to speculate in stocks.

Yes you may be correct at all this for sure and on the surface it does look the same. Things are crap everywhere. The data I looked at is what U.S. Commodity Futures Trading Commission publishes every Friday. If you plot the values on the chart, it shows small speculators as having a large buying position and large traders and commercials biased towards the downside however the speed towards the down side is incredible which means that once the public gets out in a haste these guys are going to buy quick and this will further increase bullishness.

Overall I am bullish on the market AFTER the summer correction/downside.

 

[jimbo45]

At this time according to COT reports, public is very bullish. Commercials and large traders have dumped a lot of stock on to them and hence we should be expecting a serious downside move.

Forget COT reports -- even "Moodies" - why should ANYBODY take note of that totally RUBBISH Credit agency -- It got the economy HOPELESSLY WRONG with the Banks and the "Sub Prime Slime" credit which was 99% responsible for the 2008/2009 downturn.

(Yet amazingly whole Markets react on MOODY's statements -- if you go 100% OPPOSITE to what they say you probably would be better off).

Markets operate by "Fear and Greed" -- Large traders will have to buy stock back again -- Institutions etc can't fund Pension Funds etc simply by holding Cash in a Bank at a pathetic 0.25% A YEAR. They will HAVE to re-enter the market -- My guess is that they are trying to force down stocks to a low level so they can snap up huge DECENT portfolios for Cents in the Dollar.

I'm quite happy to hang on to their coatails when the Market rises.

Note also that there are a lot of new High Tech industries emerging -- Space exploration, Alternative Energy, CLEAN use of Coal and Gas, Robotics, Micro technology for use in Medecine etc etc as well as the older traditional ones that everybody always needs as I've said before -- Food, Cleaning, Current Energy.

Don't forget also Leisure industries -- people have a lot more spare time now and these seem to do reasonably well even in times of recession. Most people STILL in spite of everything want to keep their Summer holidays / travel arrangements.

The outlook for world economy is actually OK -- A different sort of economy but companies will still need to be a part of it. We can't keep an economy going by just telling the consumer to keep spending more on Credit Cards --eventually (as it did in 2008) these will be "Maxed out". We need to start MAKING things again, Growing more of our own food, improving management and exporting this technology to other less developed countries.

We can't expect the consumer to fuel the recovery -- as people know debts either have to be paid back at HORRENDOUS rates of interest or you go Bankrupt -- no other choices.

Fortunately the Politicians are beginning (VERY SLOWLY though) to realize this - even though it will take YEARS for the changes to be implemented.

The Long term prospects for the Market are VERY BRIGHT if you can survive a few of the inevitible large dips.

Its a Good time now to select a decent portfolio and snag a few bargains.

Just don't get too greedy and expect to "Get Rich Quick". You might be lucky but a decent strategy is the only "winning" play in volatile markets IMO.

Cheers
jimbo

 

[safvan]

Large traders will have to buy stock back again -- Institutions etc can't fund Pension Funds etc simply by holding Cash in a Bank at a pathetic 0.25% A YEAR. They will HAVE to re-enter the market -- My guess is that they are trying to force down stocks to a low level so they can snap up huge DECENT portfolios for Cents in the Dollar.

That is how markets operate for successful investors. You want to be buying when there is most fear pennies to a dollar. It destroys the public but a new sucker is born every minute and that is how these markets have been operating for thousands of years and it probably would continue to do so.

Correction would bring about tremendous buying opportunity. One just has to time it properly. The COT reports reflect on whats happening on the ground and is the single most reliable indicator if you want to name it that on whats really happening with the money supply. If the banks are shorting something CFTC cannot report it as buying. All big trades are recorded.

Granted they do not have a perfect record but still better average than merely trying to guess where the light switch is in a dark room full of booby traps. You absolutely have to know what the big players are doing in order to guesstimate your move in this arena.

 

[safvan]

Forget COT reports -- even "Moodies" - why should ANYBODY take note of that totally RUBBISH Credit agency -- It got the economy HOPELESSLY WRONG with the Banks and the "Sub Prime Slime" credit which was 99% responsible for the 2008/2009 downturn.

COT reports are mostly reliable with buying as it takes ages to form a top where as lowest low can be formed intraday before the prices reverse. Lots of ways to use these reports and really depends upon your experience in using them over time.

 

[jimbo45]

Hi there
They are ONLY interested in making money -- that's 100% given -- so you KNOW that they will have to buy back eventually.

The trick is in a downward market to look for SAFE stocks -- those companies that you know demand for their products is pretty constant whatever the state of the economy.

Once you've decided on what these companies are -- determine a Price at which you feel you would like to enter the Market and then SELL a PUT option at that price ("The Strike Price").

Now the advantage here is that you've IMMEDIATELY received the premium for the PUT into your trading account and if the share is NOT PUT to you then you've made some money for NO MONEY DOWN.

If the share IS put to you -- OK you have to buy it at the strike price - but you still keep the premium -- but you decided the share was worth buying at the PUT strike price. So what you've done here is actually got the share CHEAPER than even the price you were willing to pay for it -- for example if the STRIKE was 22.00 USD and you got a premium of 0.41 per share the actual cost to you is 21.59 USD instead of 22.

If the share starts RISING do the reverse -- SELL a CALL on it.

In a falling market you can't be protected 100% but if you decide that a particular company's stock is worth buying anyway - SELL a PUT as this means if you DO have to buy the shares (They are "PUT") to you then you've still got them at a lower price than you would have bought them on the open market. If they aren't PUT to you then you've STILL made money.

Note BUYING OPTIONS is a different strategy - a lot of people when they read about OPTIONS usually only think about BUYING OPTIONS -- this LOSES for small traders around 85% of the time so the opposite must be true : SELLERS of OPTIONS WIN around 85% of the time. Not HUGELY but consistently and drip feeding 500 - 600 USD into my account every week will soon mount up to where I can make bigger and more profitable trades.


(Note there are strategies for combining SELLING and BUYING OPTIONS but for those new to options start with getting a feel of making money by SELLING only until you get the hang of it).

Cheers
Jimbo

(For next week if you are in the UK -- Old Stock market adage " Sell in May and Go away - Don't come Back until after Derby Day" -- which is today so there might be a small Rally on Monday !!!!!!).

Cheers
jimbo

 

[shadowninja]

 

[brewski1984]

I hate reading topics like this, I'm now convinced I should just short the Dow at the earliest time I can get in even though I shouldn't.