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5 "Tells" that the Stock Markets Are About to Reverse

Stock Market Accelerates to Dow 15,105 New High - Fundamental Reasons Why

Stock-Markets / Stock Markets 2013 May 09, 2013 - 12:46 AM GMT

By: Nadeem_Walayat

Stock-Markets

No one saw Dow 15,000+ coming in this time frame, not the bears, nor the bulls (me included). This is why stock market investing, any market investing at it's core is not about market forecasts as I tried to explain in my latest ebook Stocks Stealth Bull Market Update 2013 (FREE DOWNLOAD) that profitable investing at it's very core is money and risk management and everything else only tends to make a marginal difference to ones portfolio over the long-run if money and risk management strategies are properly employed.


The problem with most people who invest is that they are focused on the utterances of those in the mainstream financial media and the financial sales industry which basically comprises those that Obviously DO NOT TRADE or Invest! Instead in reality they are neither perma bulls nor perma bears but perma BS sales persons.

I did not see Dow 15,105 coming in this time frame. Instead I had engineered my portfolio by mid March down to about 18% net Long in anticipation for a probable correction of a good 12% or so from Mid March to Mid August to accumulate into, Instead the market as of writing has since risen by a good 5%.

The key to successful investing is not to lose money when one is wrong, and that can only be achieved through understanding the underlying forces at work which have remained constant for the duration of the stocks stealth bull market of the past 5 years, and that constant is one of stocks being leveraged to money and debt printing inflation consequences.

Whilst the mainstream media will be pointing to an improving U.S. economy as an explanation, I will instead reiterate the real reason that I have repeatedly stated for at least the past 4 years is that asset prices tend to be leveraged to inflation with sentiment driven prices oscillating around the inflation mega-trend (which is exponential) between extremes of over bought and over sold states.

And there is nothing, NOTHING to suggest that this fundamental structure of our economic and financial universe is about to change any time soon. Instead everything points to far more inflation during the next 5 years then we have witnessed during the past 5 years as illustrated by the following graphs.

My interpretation for why the Stock Market is continuing to soar has it's basis in the twin forces at work which are -

a. The exponential Inflation mega-trend

b. The Cyprus bank deposits theft panic event that I wrote of in late March that resulted in a fundamental shift in investor psychology as bank deposits were now increasingly perceived as being of a similar risk to stock market investments (31 Mar 2013 - Cyprus Bank Deposit's Theft Crisis Sparks Run to Stock Market Safe Haven ).

The flight into the stock market at its core represents simple logic, the simplicity of which tends to be overlooked by over-complicating diatribe regurgitating economists and journalists who tend to attribute the rally to relief that the Cyprus crisis is not as bad as it could have been, instead the simple logic is that if investors with funds parked in banks are at the real risk of losing as much as 40% their funds in exchange for a pittance in interest of usually less than 3% per annum (less than Inflation after tax). Then is it not simple logic that dictates that investors should pull their funds out of the banks and park them in SAFER dividend paying blue chip stocks that despite having a similar downside risk i.e. 40% potential loss if the markets crashed, but in exchange for that risk is an dividend income that INCREASES each year PLUS potential of capital gains of probably between 20% to 50% per annum (depending on the individual stocks performance).

Whilst I am getting a number of requests for detailed analysis of the stock market, I have to remind readers that the stocks bull market is a 5 year old trend. Instead my focus for a near year has been on the NEXT trend - The HOUSING Markets, which is where I have been shifting most of my wealth into.

To get my next in-depth analysis in your email in box, ensure you are subscribed to my ALWAYS FREE newsletter.

Source and Comments: http://www.marketoracle.co.uk/Article40358.html

Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2013 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of four ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series.that can be downloaded for Free.

The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

ShonanTrader
10 May 13, 02:52
Quick Question

Thank you very much for this quick and much appreciated update.

"I have to remind readers that the stocks bull market is a 5 year old trend."

Could you kindly elaborate on the above line. Much how you would to a small child or a golden retriever...

Thank you for your time either way,

Shonan Trader

P.S. That last line of mine comes from the movie Margin Call. I just had to borrow it.


Nadeem_Walayat
10 May 13, 19:13
Stock Market Expectations

Hi

It's just that I don't expect a 5 year old bull market to deliver similar gains going forward i.e. the last 5 years have seen an average gain of about 25% per year, whereas I expect the next five years will probably be lucky to average out at 8% per year.

Best

NW


HP
19 May 13, 12:05
Short Term Expectations

Thank you for your increadible insights on the Stock markets. I have the same view regarding the stock market but my patience is running out!!!

As you have admitted the Dow has moved much higher than expected, are you still expecting the masive correction as per your latest ebook, Stealth Bull Market beyond 2013? If so at what level?

Furthermore you are now postioning to invest 60% of your portfolio in the property market. Any thoughts on how one could invest inorder to hedge against inflation through property but does not have access to physical property?

Thank you,

HP


Nadeem_Walayat
20 May 13, 18:03
Stocks and housing

Hi

My focus is on the housing market, but I can tell you what my actions have been with regards stocks which is to look for opportunties to reduce my exposure,

I like to buy when stocks are cheap and sell when they are being bid up in a frenzy like now.

With regards housing, it all boils down to risk vs reward. it has to be physical property, for very low risk and high potential returns, housing stocks may give higher returns but the risk vs reward is nowhere near as good.

My current article is on UK housing, I should have posted it a week ago but it's way too long and I need to cut it down further before posting, else people will complain that it is well... too long.

Best

NW


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