The monster in the market’s closet

samsonI’ve made it my mission to keep my readers profitable, but above all, safe. I don’t want you to ever be blindsided by an event like the 2008 crisis again. The signs were all there for the shrewd analyst to see, many months before the crash started in earnest.

Bears follow bulls sure as winter follows summer, and they’re nothing to be afraid of if you know how to spot them. We need winters so we can renew, and enjoy another healthy summer. AND we can make money on the downside as well as the upside!

So my watchful eye is looking out for you today, and every day.

It’s been a long and profitable bull market and the S+P is within a hair of all time highs. But, as I sit cozily in bed, holding my uptrending S+P like a faithful teddy bear, there’s a banging in my closet keeping me awake…

In this column in recent weeks I’ve highlighted a few key developments:

1)     The smart money has clearly moved into defensive stocks like utilities and energy.

2)     The Nasdaq looks sick.

3)     This bull market is about as old as bull markets get.

The S+P and the Dow Jones may look healthy, but we really need all indexes to be in synch, in harmony. If they aren’t, something is up. It’s not unheard of (though unofficial), that the big institutions push up buying in one index (like the S+P) while they quietly unload stocks in another (like the Nasdaq). Naughty, naughty… but totally legal.

Here’s a chart of the Nasdaq currently (curvy blue line is the long term average price):

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Now below here’s the chart of the Nasdaq for January 2005 through January 2008 (and you know what happened in the months that followed):

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As Mark Twain observed, history doesn’t repeat, but it does rhyme. This could be a market top for the Nasdaq that leads the rest of the market down, but I only say ‘could’. Anything can happen next, and we could be at an important inflection point. I want to see the Nasdaq resume its uptrend before I can be comfortable with a blanket bullish call on markets. What happens in the weeks ahead will be very important, as will it be to see how The Fed responds.

Having said that, let your winners continue to run, keeping your trailing stops tight. I’m talking about the longer term here. Our stock recommendation services continue to fly, giving 100% winners regularly. And as and when the next bear market shows up, the picks will switch to bearish ones.

To profit, we ride on the tide of the prevailing trend. The trick is knowing what the trend is, hence my weekly focus on precisely that. Bottom line: We have plenty of evidence for the early signs that make a bearish case, but we do not yet have any proof.

Best,

Jim.

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