Saturday, December 28, 2013

The Probability Of A Stock Market Crash Is Soaring

While some individual stocks (cough TWTR cough) may have reached irrational bubble territory, the US equity market is undergoing a seemingly 'rational' bubble. However, as John Hussman illustrates in the following chart, the probability of a stock market crash is growing extremely rapidly.

Based on the this paper, Hussman simplifies the rational bubble as:
You only hold one long one more period if expected return is positive - requiring EXTRAGAIN x (1-p) + CRASHLOSS x (p) to be greater than 0.
As John goes on to explain, The diva is already singing, the only question is how long they hold the note...
Regardless of last week’s slight tapering of the Federal Reserve’s policy of quantitative easing, speculators appear intent on completing the same bubble pattern that has attended a score of previous financial bubbles in equity markets, commodities, and other assets throughout history and across the globe.  (more)
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Three Cycles To Watch in 2014

We hear about stock market cycles all the time.
We can look at short-term stuff like the annual seasonal cycle for U.S. stocks. For example, we are currently in the best three-month period of the year: November – January. We are also towards the beginning of the best six-month period of the year: November – May.
We can break it down even further and talk about the Santa Claus rally that typically comes late in December. But today, I want to focus on some of the longer term trends that seem to be coming together in a nice way.
The first one is the Presidential Cycle that represents the standard four-year presidential term. The second one is the Decennial Cycle that tracks stock market behavior for the 10 years of each decade. And the third one is the longer-term Secular Bull and Bear Market cycles.  (more)

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We Haven’t Seen Shocking Numbers Like This In Years
There is reason to be concerned even with global stock markets trading near all-time highs.  There is a stunning chart featured below which all KWN readers around the world need to see.
If you look at the chart below it reveals there are some serious warning signals even as many major indexes have been trading near all-time new highs.  You will see figures in here that are breaking records not seen since 1987!
Here is the latest Investors Intelligence report along with the all-important sentiment chart:  “Stocks surged after last Wednesday’s Fed surprise with nearly all indexes ending the week at record highs.  Short term indicators were poised for rallies and they strengthened to end with universal bull confirmed status.  More important were numerous confirming medium term oscillating chart reversals up.  They suggested the move was more than a year-end rally.  A week ago we noted hints of developing skepticism but they quickly ended with an even higher bullish reading….
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BEAR GRIP: 9 ways 2013 changed gold for good

The price of gold is down 28% in 2013 and is set to break the 12-year bull run that took it from around $270 an ounce at the end of 2000 to a record high above $1,900 in September 2011.
Gold's $480 an ounce fall in 2013 is the worst performance since 1980, when the yellow metal hit $850 an ounce, in inflation adjusted terms still the all-time high.
Here are nine ways 2013 changed the nature of the gold market and pulled it into bear territory:

1. A collective loss of confidence

Gold bugs used to be able to roll with the punches and absorb price shocks. This year they had no fight left  (more)
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How to Trade Breakouts for Bigger Gains and Less Risk

Stock charts are used by traders to forecast price action. These patterns are useful, but they are certainly not infallible. Rather than using them for market forecasts, I prefer to use patterns to develop complete trading strategies. Each pattern offers a forecast of the potential gain and a point where that forecast is proven wrong by the market action.

There are many investors who don't use chart patterns. In A Random Walk Down Wall Street, author Dr. Burton Malkiel showed that investors could not tell the difference between charts generated by actual market movements and a random number generator. Of course, Dr. Malkiel is correct that the patterns show up in random data. But that has nothing to do with whether or not the patterns are useful.  (more)

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Top 30 Stocks 2013 Ranked by % Return with Charts

2013 has been a big year for stocks as the S&P 500 has moved up over 28% YTD and only three trading days remain.
To find the top performers for 2013, I ran a stock screen at FINVIZ. ETFs were excluded and volume had to average atleast 300,000 shares per day.
Looking back is an extremely effective form of post trade analysis, especially as most big gainers share common traits like strong fundamentals.

Top Stocks 2013

1. ZHNE, YTD Return +936.17%
Zhone Technologies, Telecom-Fiber Optics
ZHNE 122613
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Long Term Interest Rates Headed Higher and Economy is Too Broke to Afford It

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How Doug Casey Would Invest for Profit in 2014

by Doug Casey, Chairman
Casey Research

What’s likely to pay off the most in 2014? That’s the question Kitco News has been asking notable investors, including legendary contrarian speculator Doug Casey. Discover how Doug would allocate $10,000 in the markets for 2014, and compare it to how other experts have answered the question for this highly interesting interview series.
With increasing political interference in the financial sphere and ramped-up money printing worldwide, all investors have become speculators today… whether they want to be or not. That’s why it’s even more important today than ever to recognize that trend, and to “make the trend your friend,” as Doug is fond of saying. Get started on that course today… with the next best thing to having Doug Casey at your side.
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