Momentum Trading: Good or Bad

Momentum: Good or Bad?

 

 

To be sure, momentum markets are exciting, and very profitable. But they have a limited lifespan and they always end up badly. One of the most dramatic momentum runs of all time was the last six months of the Internet bubble, the period from September 1999 to March 2000. The Nasdaq rose 86.4% during the period, and it seemed as if the market would never fall again. Of course it did, and the Nasdaq Composite, despite a nifty rally since March, is still off 65% from its March 2000 peak.

Momentum is a double edged sword. When it's going your way, it feels good. The problem is that it's not going to last forever. And the damage, not to mention the hangover could both be devastating and long lasting.

As traders and investors, it's foolish to fight a strong tape. Thus, we have increased our exposure to stocks over the last few weeks, and we have several positions that are acting well.

There are no signs, at this point, that the stock market will do anything other than have an occasional moderate day or two off here and there.

We see no technical divergences to worry about too much at this point. Volume, breadth, and momentum are all headed in the right direction. And sentiment is nowhere near the total euphoria that marks major market tops.

The S & P 500 looks on course for the 1000 area, where there will be some backing and filling. Even a pullback of several days is possible there, as well as a failure of the rally. But until the 1000 area is near, there is nothing to do but stay with the trend, which is up.

The caveats are always there, external events, especially political insanity, in Washington or elsewhere, as we have listed above.

For now, the best course is to stay with the trend, and to continue to monitor events with a very cautious eye.

Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books

Gangster Government

Technical Tips from Dan Gramza

 

Hello everyone, this is Dan Gramza and welcome to Gramza Market

Studies Technical Tip.

 

Well today we're going to be talking about selling rallies. Now what

does it mean when people say, "sell the rally" when you want to

get into a trade? Or they sell a pull back? Or you hear things like,

"The Trend Is Your Friend?"

 

Well we're going to explore this here in just a minute. I want to show

you the technique and I want to show you some examples of how

these markets behave in those settings.

 

I want to show you an example, but before I can talk to you too much

about this example I need to define a few things for you. First candles...

the approach that I use with Japanese candle charts, and that is what

you're looking at here, is not the standard approach. So from my

perspective,

I don't focus on patterns, I focus on behavior. If we see a green candle

that represents buying, that means that the closing price is higher than

the open. If you see a red box that represents selling it means that the

closing price is below that opening price. If you see a white line on top

that's called a shadow, I think that represents selling. If you see a

white

line on the bottom that represents buying. Now with that in mind, the

sizes

of the bodies and the shadows tell us about the degree of buying or

selling.

 

Now let's talk about this set-up here...

 

To get the rest of the tips, please visit the link below and WATCH me!

http://www.ino.com/info/36/CD3616/&dp=0&l=0&campaignid=9

MarcFaber – Great Article

Faber: Next Stimulus Will Be Worse
Wednesday, July 15, 2009 3:46 PM By: Julie Crawshaw Article Font Size
Some economists think that another bubble is what's needed to get the economy moving again. Gloom, Boom and Doom publisher Marc Faber said this is ridiculous, and that the Federal Reserve — which he holds responsible for creating the housing bubble — wants to do it all over again. The central bank should not encourage excessive credit growth, Faber tells Moneynews.com's Dan Mangru in an exclusive interview. Between 2000 and 2007 the total U.S. credit market debt increased at five times the rate of nominal gross domestic product. Unfortunately, Faber said, the next bubble is already here. This time it's government spending and fiscal deficits that Faber thinks will double the government's debt during the next six years or less. "The U.S. government is largely deranged," he said. "The private sector is the dynamic one, and that's why I object tremendously against building up fiscal deficits because (they) shift economic activity into unproductive government instead of leaving it in the private sector." Another stimulus package would only make matters worse. "In the Depression, they had one stimulus after another and it didn't help," Faber said. "What helped was World War II." The problem with bubbles, Faber said, is that they only temporarily stimulate the economy. "The whole economic expansion driven by a bubble in America has been a total disaster and has shifted wealth from the ordinary people who work … to the Wall Street elite," he said. Nor does the government score any higher when it comes to managing inflation, which Faber thinks will reach Zimbabwe-like levels in the U.S. courtesy of the Fed's policy of keeping interest rates too low. "The Fed, in my opinion, has zilch idea about monetary policy," Faber said. "What they focus upon is basically core inflation, which does not include energy and food prices and the way the Fed measures inflation is highly questionable in the first place because when you measure inflation it's a basket of goods and services." When the economy recovers, interest rates should go up because of inflationary pressures, something Faber expects the Fed won't let happen because it could cause interest payments on the government's debt to double. Those payments today are slightly below $500 billion annually. If the global economy collapses in a deflationary spiral, those government deficits actually expand, leading to more central bank-driven monetization, Faber said. And keeping interest rates artificially low will lead to more and more inflation. Add to all of this the expectation that health care costs will soar and jobless rates will probably continue to be high, and the economic picture becomes even gloomier. "I think we've just gone … to the beginning of the realization that the economy may be bottoming out but not much recovery is forthcoming," Faber said. © 2009 Newsmax. All rights reserved.

Bad Banks?

Special Report from The Daily Reckoning:

Do You Own Stock in Any of These Banks?

And what to do if the answer is YES…

The Crisis

It all started as Wall Street crumbled around him, former Treasury Secretary Hank Paulson claimed a $700 billion bailout was necessary to prevent financial meltdown.

When that didn't work — the Dow and S&P were each down over 18% just a week after the bailout emerged from Congress — Paulson suggested the federal government step in and prop up the banks.

Since it all began, the Feds have been pumping out billions in phantom money to shore up banks across the country. There seems to be no limit to the amount of money the government is willing print up and dump into this crisis. If this seems reasonable to you, you probably work in Washington, D.C.

The "Solution"

But will this drastic "solution" make the banks solvent again and avert a total meltdown? It's doubtful. Problems and pitfalls lurk everywhere.

Right now the banks are simply hoarding the injections of cash, in a desperate attempt to maintain liquidity. The banks are terrified of becoming insolvent.

Worst still, a wide-array of extreme oversight and regulation is right now in the works. How strong the restrictions will become is yet to be determined. The only thing that seems cut and dry is where the final accountability will rest. The answer? With taxpayers like you! Are you willing to help foot the bill?

As new details come to light each day, it becomes increasingly clear that we're staring at the very real possibility of a depression in this century. If you expected good news from the bailouts by now you should be thoroughly disappointed.

The Depression

Home sales are poised to continue plummeting, even as prices fall around the country. The U.S. unemployment rate at 8.1 percent in February is already the highest in more than 25 years.

The Dow could easily shed another 30% from its current level, as investors ditch any further effort to beat inflation and flee to the comfort of cash under the mattress.

Your first step in preparation of this potentially dire situation is to analyze what you own and why you own it.

For example, if you hold stock in any of the following five banks, you may want to reconsider your exposure. There may be another very big leg down in this continuing financial fallout. This year is shaping up to be bumpy and to require some belt-tightening, so it pays to be prepared.

Citigroup (C:NYSE)

Billions of the government bailouts have been handed out with Citigroup's name on it. Bailout after bailout, three in total, and Citigroup is still at risk of returning to a $1 stock.

The share price currently has been cut down to a tenth of its 52-week high, and much less at times. If you can believe it, since the February 27 round of government life support, taxpayers already own about 36 percent of Citigroup's common shares. That's not saying much — it may become much worse.

J.P. Morgan Chase (JPM:NYSE)

J.P. Morgan Chase has taken $25 billion from the government's Troubled Assets Relief Program (TARP) assistance — this when over 50 million Americans own JPM shares, many through 401ks and other retirement accounts.

So, is J.P. Morgan solvent? Some estimates indicate it might have potential current derivatives losses of over $240 billion, which would far exceed its $144 billion in reserves. Could it get better? The potential future exposure looks even worse, with staggering exposure of up to $300 billion.

The Rest of the Fallout:

Goldman Sachs (GS: NYSE)

Morgan Stanley (MS: NYSE)

Bank of America (BAC:NYSE)

Goldman Sachs, Morgan Stanley, and Bank of America each also require a hard look if any one of those banks is a part of your portfolio. Although they have sometimes claimed to not need them, Goldman Sachs and Morgan Stanley are eating up bailout dollars without remorse — and both sit on billions of dollars in rotten debt.

Bank of America, after taking over collapsed firms such as Countrywide Financial and Merrill Lynch, also deserves a much closer look. The investigations into exactly how much worthless paper it holds (and who's on the hook for it) are just getting started…

It doesn't look good so far! Bank of America has over $80 billion in potential current derivatives exposure. That's below its $122 billion reserve, but it's really its total exposure is the terrifying part… greater than $200 billion!

If you own any of these stocks, you need to do some hard thinking. Do you own these banks for what they are right now — risky stocks with dubious assets and significant bad debt? Or, do you continue to hold them based on what they were once, and will likely never be again — the titans of Wall Street?

Likewise, if you own Wells Fargo (WFC:NYSE) — which recently stepped in and gobbled up struggling bank Wachovia— you owe it to yourself to pay close attention to just how bad the situation at the combined banks has really had become, It has combined reserves of over $100 billion, but its total future risks also exceed $100 billion.

The big story here is simply this: If you own banking stocks right now, you need to seriously reevaluate why you own them. Do you honestly think the fate of each may improve in the long haul? Perhaps now is the time to sell and move on? An obvious first step is to speak with your investment professional in order to begin weighing your options.

How We Can Help

The Daily Reckoning has been following the entire mess very closely, and we've been warning about the impending banking meltdown for years — long before the mainstream financial press woke up to the trouble.

Not only can you avoid the worst of the fallout starting right now, but you can also begin to gain consistent and relatively effortless profits, too. We know a simple, yet lucrative way for you to pad your portfolio against what is bound to be a trying time for our economy now and for some time into the horizon.

To uncover this great nonbanking portfolio — which actually pays you to own it — check out this extra exclusive report reserved only for Daily Reckoning readers like you.

Introducing the Single Best Way to Make Sure You'll Never Run Out of Money…

The Endless "PAYCHECK PORTFOLIO"In three simple steps, unleash a steady flow of work-free income… starting with up to 75 automatic "paychecks" deposited directly into your account. Act now or risk missing the next "payday". To access your report please CLICK HERE.

Copyright © 2009
Agora Financial, LLC and Daily Reckoning,
808 St. Paul St., Baltimore, MD 21201
All rights reserved. Information contained herein is obtained from
sources believed to be reliable, but its accuracy cannot be guaranteed.

Crude Oil

Crude Oil & Energy Update - Interview with the CME Group's Joseph Ria When you hear the news reporters talk about the price of crude oil in the marketplace, they're generally talking about WTI, which is West Texas Intermediate crude oil. It's a very light, sweet crude oil and the highest grade that's out there. Crude oil is based on and priced on the amount of sulfur that's in the oil. It makes it easier or harder to refine base on the amount of sulfur. WTI being the lightest and sweetest, is the highest priced crude oil in the marketplace. It is a benchmark delivered in Cushing, Oklahoma. In benchmarks for crude oil and global pricing of crude oil, WTI probably prices about 50% of the global pricing of crude oil. Brent being basically the other pricing benchmark. There's two out there, Brent being a little of a mixture of three different grades of crude oil; BF&O, Brent 40 and Ossenberg. They're all produced in the North Sea. Please visit the link below to stream live the rest of the complimentary article from Joseph Ria. The link below will also give you exclusive access to three more video seminars and articles! http://www.ino.com/info/36/CD3616/&dp=0&l=0&campaignid=9

Dump Your 401k

Dump Your 401k
Common Sense VS. Conventional Wisdom

 

Denver, CO - July 1, 2009 -

Americans are trapped by an economic model that treats conventional wisdom as common sense.
 
I define conventional wisdom (CW) as doing what everyone else is does and thinking what everyone else is thinks just because that is what they are doing and thinking.
 
I define common sense as simply being awake.  Common sense is paying attention to obvious realities and allowing yourself to be aware of what options and alternatives best serve you based on that reality.
 
Tax deductibility is an aspect of reality where we Americans have forsaken common sense to follow CW.  I'll explain what I mean, and then I'll give you an example.
 
CW tells us that we should contribute as much as we can to our 401(k) or its equivalent.  CW convinces us that we should at least take advantage of our employer matches in order to get the free money.
 
However, CW isn't concerned with how much we can afford.  CW doesn't provide guidelines that allow us to make informed decisions based on the common sense reality of our own lives.  Here's the case of Bob and Sally...
 
Bob and Sally have good jobs. Sally is a schoolteacher in a public system and Bob is a sales representative for a copier company.  Between them, they earn about $120,000.00 per year.
 
Sally and Bob believe they are doing the right thing by putting $10,000.00 each year into the mutual fund type investments in Bob's and Sally's defined contribution retirement plans (that includes the employer's matching contributions).
 
Since 1999, the amount in their retirement plans grew, shrank, grew again and shrank again.  They contributed $100,000.00 over the past decade and it is only worth about $98,000.00 today.
 
Their advisor wants to convince them that they should stay the course because in the long-term they will see the gains.
 
Here are other realities facing Bob and Sally that aren't apparent from the facts we've seen so far.

• Bob drives a new SUV and Sally drive a relatively new sedan.  Both are financed.  They owe about $50,000.00 on the two cars and have payments of over $1,200.00 per month and much of that is interest.  The insurance on the cars amounts to $250.00 per month.
• Bob and Sally each have their own credit card.  They use them to pay for vacations, purchases such as TV's and appliances, and entertainment.  They owe a balance on both credit cards.  The balance is just over $20,000.00.  The interest rate on the cards averages about 18%.  Each month they pay more than the minimum, but they tend to spend more than they pay and the balance they owe is increasing slightly each month.
• Bob and Sally have a $400,000.00 home with a conventional thirty-year mortgage for $320,000.00 at 6% interest.  Their payment of $2,500.00 includes taxes and insurance.
• Sally and Bob owe $32,000.00 on an equity line of credit also.  They used it to build a home-theater and finish their basement.
• Bob and Sally also follow CW and have an emergency fund of $40,000.00 in a savings account.

From the perspective of CW, Bob and Sally look pretty normal.  However, if we deconstruct their personal economy with the sledgehammer of common sense we'll discover another way of looking at their condition that makes more sense.
 
On the first venture into awareness, we can see that Bob and Sally's total debt is $102,000.00, excluding their mortgage.  Amazingly, their debt exceeds their total investment in their retirement accounts over the past decade.  We can also recognize that it is greater than the assets that remain in their retirement accounts.  One does not have to have a degree in logic to realize that the money they borrowed ended up funding those retirement accounts.
 
Moreover, their retirement accounts earned a negative rate of return over the past decade.  Worse, the interest on the money they borrowed averaged more than ten percent each and every year.  What does that mean?  It means that the retirement accounts would have to earn much more than ten percent in the future just to catch up to and to break even with the cost of the debt that Bob and Sally used to fund the retirement accounts in the first place.
 
If common sense considers the cost of borrowed money over that same decade, the picture becomes bleaker.  Bob and Sally shelled out almost $72,000.00 in interest payments in addition to creating more debt and experiencing a negative return on their invested money.
 
When you calculate the total, Bob and Sally used $174,000.00 to build an emergency fund of $40,000.00 and put $98,000.00 in their retirement accounts.  Even though the contributions to their retirement accounts allowed them about $25,000.00 in tax savings over the same period, they still end up in a negative position.
 
How about an alternative common sense approach?

Bob and Sally could have paid $10,000.00 each year as participating whole life insurance premiums[i] instead of opting for employer matches and tax deductions.  At the end of the period, the cash value of the policies would have been about $128,000.00 - $30,000.00 more than the retirement accounts...so much for the tax deduction.
 
Here's more.  Remember the $72,000.00 Sally and Bob paid in interest to banks?  By borrowing against the cash value of their life insurance policies and repaying those loans on the same terms they would have had to repay any other lender, Bob and Sally would have redirected interest back to their own policy and reduced and/or eliminated interest payments to others.  That would have saved tens of thousands of dollars.
 
In addition, Bob and Sally put $40,000.00 aside in an emergency fund.  If they added that money to the participating whole life insurance premium, the cash value of the policy would increase to about $180,000.00.
 
Consider also that Bob and Sally do not need permission to access the money in their policies.
 
Then again, Bob and Sally pay no penalties or taxes when they borrow money from their policies.
 
Here's another coup - growth of the money in Bob and Sally's policies is tax deferred, the same as in retirement accounts.  We know that the IRS taxes the income from retirement accounts.  However, Sally and Bob, with the help of their insurance and financial advisor/guide, can receive tax-free income from their policies for life.
 
There's a whole lot more, but that's all for today...except...
 
If Bob and Sally put their money into participating whole life policies...
 

• Both Bob and Sally would continue to drive new cars financed for about $50,000.00.  However, they would redirect the monthly payments of $1,200.00 back to their life insurance policies and would replenish the equity in those policies for use again in the future.
• Bob and Sally would continue to have credit cards for vacations, major purchases, and entertainment.  However, the balance on the credit cards would revert to $0.00 at the end of each month, and the 18% interest rate on each card would be irrelevant. 
• Bob and Sally's $400,000.00 home would still have a $320,000.00 conventional thirty-year mortgage at 6% with a payment of $2,500.00 including taxes and insurance.  However, in another few years, Bob and Sally would have enough money in their whole life policies to repay the mortgage and begin repaying themselves by redirecting the interest to their policies.
• Bob and Sally would not owe $32,000.00 on an equity line of credit that they used to remodel their basement.
• Bob and Sally would still keep about $100,000.00 cash in their policies as an emergency fund.

Conventional wisdom is not wisdom at all.
Investing in retirement plans (or anywhere else) is not saving.
 
Tax deductibility is a trap.  Don't fall in.

 

By Jeffrey Reeves MA

 

Off - Wall Street Cash Recovery Plan!

"Off-Wall Street" Cash Recovery Plan!