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Archive for June, 2010
Clear and Present Danger
Clear and Present Danger
While one may read the title and think it a bit melodramatic, I want to be clear. In my belief, the present market conditions represent, just what the title states, a clear and present danger to your wealth. I’m prepared to stick my neck out here and unequivocally state that my reading of the market technicals indicate that we are on the verge of some very rough times ahead. Here’s why: Today’s actions caps what I see as a failed attempt by the bulls to close out a session on the upside.
In Summer Winds a few days ago, I used the S&P to make my case as to why I was standing aside with my long term portfolio in order to once again preserve recent gains. As detailed in “Ten Minutes to Financial Freedom”, the key indicators confirm the downward trend observed to be in effect as early May 14th. A careful review of the details in the product would have given you an early warning of a possible change to come in early May and a solid confirmation on the 14th. Using history as our guide, the same technical pattern in 2008 saw a 12% drop in the S&P by mid-Summer followed by the much much steeper decline in late September/early October. This time with the downgrade of Greek debt, and the dire rumblings regarding Spains’, fear will play a much larger role in the speed and swiftness of any signs of weakness. Use any of the meteoric up days(and there will be fewer and fewer of these) to exit on strength as you prepare your portfolio to weather this upcoming storm.
What we’ve seen most recently in a 2010 market where up until May 6th had not had a 1% down day, is fear. Fear and panic have resulted in what can only be described as a bipolar market. Weeks of steady plodding rises have been replaced with moments of sheer panic and euphoria as wave after wave of news of past market gluttony weigh on the minds of jittery investors. The potential Spanish debt default numbers in the offing make Greece’s $240 billion dollar debt look like pocket change. The fear of a Spanish default will presage any reality of it. The fragile technicals all but confirm it and given Spain’s indebtedness to the US banks who guaranteed some of their debt, this next wave will be swift and decidedly down. The sharp declines on low volume suggest strongly that there are very few buyers of influence-those big or powerful enough to change market sentiment with their buying power. This sign In concert with the technicals, portends a very blue Summer.
To your investing health