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 14^th. 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 14^th. 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 6^th 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

As the markets take their deep breaths back and forth, one doesn’t need to be much of a student of history to realize “we’ve been here before”. As recent as 2 years ago (see charts below)

What the charts show then as now is that in late May 2008, the markets gave a clear warning that your continued long investments would be in jeopardy going forward.  Cash levels are another key factor noted at that time by the link below: http://4.bp.blogspot.com/_H2DePAZe2gA/S48CtdKFTYI/AAAAAAAAMB4/gkM4D6I46Hc/s1600-h/cashlevels.jpg

What the charts suggest is that at a time when cash positions were at their lowest levels have historically been turning points marked by huge market upheavals. The combination we have now of low historical cash levels and the warning signs portended by a study of the above charts is enough warning for me that we may have seen the best of the market for some time. What lies ahead has convinced me to move my long term funds to safe(er) government bond funds that earn less than stock based funds, but provide increased stability during severe market downturns. You may wish to take a closer look at your portfolio. The Summer Winds are once again speaking volumes.

The truth is, that as sudden as this has been, it has not been without warning. I’m not referring to the warnings you get from CNBC or your evening news….these are all historical views…of the worst kind. They’re really really late, and do nothing to calm the rising panic. Panic, in this case sells papers and provides ad revenue. In times like these and like the ones to come, its important to keep your head and act decisively. If somehow you determine in light of new information, a decision you’ve made is flawed, change it. These types of markets require you to remain nimble and vigilant.  In my post “Death of Buy and Hold”, I reference the use of market moving averages to provide guidance as to what to do with your investments in a general sense. Allow me to explain. Pick your market. By reading the tea leaves of these averages, you gather whether a given market is signalling “all in” or “stand aside”. For the specific details, you’ll have to purchase FinancialSA’s core product. Suffice to say that the current death throes as I refer to this volatility,  is a warning. While death throes may have the ring of melodrama, the intent is to convey with sufficient urgency, that in spite of all the pronouncements of “economic recovery”, TRILLION dollar aid packages and additional bailout requests, such as from our largest mortgage holder(FMAE), seem to becoming more “acceptable”. Certainly more common place. The need for more of these is growing faster. GM, BofA, AIG, CITI….Greece is just the latest in the spate of entities refusing to balance their economic check books. You could say, the violent thrashing is the markets’ response to this refusal. What I want to leave you with, is this. The fact that these numbers are being bandied around in every news cast or financial headline has the dangerous condition of lulling you into a sense of inaction. Trust me when I tell you, the one thing no one is mentioning is that all these aid packages you keep hearing of are bigger than the previous ones. The end is not in sight either. Greece’s populace have not taken kindly to being told they will have to finally balance their check book. Their problems and by extension, world markets’ problems are far from over.No market ever goes straight down, or straight up, for long. Like my tennis analogy made in previous posts, focus on the value of your investments and how they respond to this volatility. Increasing your financial SA will help you take specific action fast. This economic fish has been hooked and brought into the boat. The thrashing about your investments are experiencing signal a call for action. Pay attention before you get blood all over you.

The bottom line is this: you have a goal for investing in the stock market, presumably any market. That reason is to make money. At the very basic level, you buy at some “price” and if you succeed at your goal, you sell at some higher “price”. End of story. Where things get murky is when people start to assign “value” to things. Value is invariably a comparison between two or more entities. My thesis says, you don’t care about “value”. You can buy stocks at a good value relative to other times when they were higher or at a good value relative to others in their category and still lose money. The only thing that matters in this case is what the PRICE is doing. This is akin to a tennis match. There is much going on at any given tennis match, the grunting of the opposing players, the temper tantrums, bipolar crowds, umpires and line judge calls. In the end, the game is decided by the movement of the ball across the net. It’s_all_that_matters! You want to make money buying and selling financial instruments? Keep your eye on the PRICE

Set aside your need to understand the whys of the markets for a minute. Tell yourself what ever you have to, to make this idea work: “The market is smarter than I am”, “it’s already priced in”, “markets are well ordered”. Whatever. It matters not. If you buy and it doesn’t go up, you lose.  Plain and simple.  Stay with me here. The key then becomes:  how do you know when it’s time to buy and more importantly, time to sell.  The simplicity of this boggles the mind, but you buy when the stock has crossed a series of gates in the upward direction and you sell when it’s crossed a series of other gates in the other direction. Here’s the meat of the matter: the gates.

In simplest terms, these gates are moving averages. Research has shown that attention paid to a particular set of the moving averages would have saved you from the recent 50+% decline in the stock market in the most recent meltdown. These very same gates would also have alerted you to the change in direction that occurred in March/April 2009 that a change in direction was underway. Understand this: These gates are not a set of tea leaves, or financial crystal ball. They won’t tell you when it’s about to happen, but they will alert you to the fact that it has. With these gates you won’t wring every drop of gain from a stock, index or fund, but you will live in the meat of the meal so to speak.  Markets move relatively slowly. It’s only the daily bombardment of our senses with 24 hour news networks and stock market reports on the hour or on demand that make it seem s though things move faster than that. With the benefit of history, you can see that your decision to get in or out a day or so later is not a break or make event, MOST of the time. These moving averages are like molasses, too slow and unsexy for our fast-paced, always-on, instant society. But miss what they’re telling you and you’ll be at the mercy of tidal waves of bad fortune. Pay attention and you’ll be sleep better, wake up happier and be wealthier. So pay attention.
To your financial health

To your investing health.

The financial expression “To catch a falling knife” is to attempt to buy a stock or investment that has fallen so far in value that it MUST be a bargain. If it was a great stock at $50, it’s a SCREAMING buy at $40 and worth mortgaging the house, wife and dog for at $30. WRONG! WRONG! WRONG!

Let’s keep it simple. If you’re like most, you make money when the stock you buy goes UP! End of story! Let’s set aside the consideration of dividends for now. My contention is that your job as a responsible captain of your own ship is to make a profit. I contend that the magic lies not in trying to PREDICT where a stock will go or WHEN. I contend that if you simply stick to what the stock is doing NOW, you’ll be much further ahead. What averaging DOWN does is reduce your average price-true-and we’re all taught that if you were willing to buy it at $10 and it’s now $5, you buy with both hands. Let me challenge you that perhaps it’s now on sale at $5 because fewer people want it.

The key takeaway here is that what you really need to know is how to tell when it’s time to buy and to sell. If you simplify it in this very clear and concise manner, it will help you cut through the maddening herd clamoring for your attention to feed at their trough under the guise of the next magic prediction method.

Think of this as an important tool in your investment arsenal. ]]> http://www.financialsa.com/2010/03/catch_a_falling_knife_why_averaging_down_is_a_bad_idea/feed/ 2 http://www.financialsa.com/2010/03/simple-financial-truths-2/ http://www.financialsa.com/2010/03/simple-financial-truths-2/#comments Mon, 29 Mar 2010 17:10:33 +0000 candaul berber http://www.financialsa.com/?p=418 It may seem obvious, but as a BUYER you want to invest in instruments that are going UP in value. The converse is true if you’re a seller. Seems simple enough.However something gets lost in the heat of the moment, when YOUR money is on the line causing the application of this simple truth to fail. Something that makes you lose sight of this simple truth. Unfortunately at some point it ceases to become a series of financial decisions and becomes perhaps a series of emotional ones. During this heated time you forget that the most important thing is to decide if the reason for investing in this instrument has changed. Has the investment stopped going in your direction? I contend that this is the most important question that you must ask-and keep asking-while your money is on the line. The answer while not immediately apparent is key to what you do next. Whatever criteria you use, you must have the answer to the questions-is THIS investment still increasing in value or is there some better place I could put my money where it will either have better appreciation, less erosion of value or more generation of income? While this may seem too simplistic a series of questions, when you see the huge losses sustained all around you in various(even yours) portfolios, it’s abundantly clear that someone isn’t asking these simple questions.

Questions asked. Now where do you find the answers? Having this information is no guarantee of action, but it’s the necessary next step in the process of making informed financial choices. Tomes have been written about financial analysis and various theories of buying, holding and selling. I propose that in the final analysis, the answers are very simple-what you want to know is: Am I making money, losing money or just keeping pace with inflation?

In Ten Minutes to Financial Freedom, I get to the heart of the matter by showing you how to make this key determination. Learning to interpret these simple criteria will allow you in minutes to make this assessment. Having this key tool in your investment arsenal will help your decision making and bolster your confidence in challenging any recommendations to buy or sell and financial instruments that don’t meet these most basic criteria.

To your increased financial situational awareness. ]]> http://www.financialsa.com/2010/03/simple-financial-truths-2/feed/ 0 http://www.financialsa.com/2010/02/february-2010-news-brief/ http://www.financialsa.com/2010/02/february-2010-news-brief/#comments Thu, 04 Feb 2010 00:14:15 +0000 candaul berber http://www.financialsa.com/?p=253 SQUAWK BOX LEMMINGS

The more and more I watch and listen to the financial advice shows on TV, the more I realize how much closer to entertainment they are than to advice.

A prime example that occurred as recently as last week was Google’s earnings announcement, where the stock blew away earnings, but its guidance was less than magnificent. The stock immediately broke through its 20 and 50 day EMAs to the downside.

A number of advisers on one particular show which I’ll not name, but rhymes with “past honey” opinioned that “Google looked great at these levels”. Basically recommending what many financial advisers continue to do, that if it was good at say $600, it’s a bargain at $550.

Theoretically true, it is indeed cheaper, in much the same way that as a knife falls, the closer it is to the ground, the easier it is to catch. In either case however, I wouldn’t put MY hand in the way of either. There is a strong psychological urge within us to seek the best deal we can, wherever possible.

Once in a great while the opportunity to buy at a discount comes along, but I contend you’ll have the most success with this method when the stock in question has dipped, but turned back up without breaking either of those 2 critical EMAs, the 20 and 50 day.

In the graph below, the red arrow and box illustrates the danger of catching a falling knife. The green arrow and box show the potential buying opportunity that existed back in early November 2009, where the stock dipped, but didn’t break its EMAs. The subsequent rise, foretold that the run was not yet over.

Use this as another example of your cautionary tale.

At the end of each of these periods, government intervention took place to prevent banks from taking action on increasingly delinquent loans. Ostensibly to give those in trouble time to get their house in order.

Let’s apply a bit of logical thinking to this shall we? So you’re three or more months in arrears on your mortgage. This is likely because you’ve lost your job and have had to dip into your rapidly diminishing savings or have had a accept a lower paying job just to get by. To minimize the hemorrhaging, you stop paying the mortgage. With no job prospects, a three month moratorium does you no good. It’s a delay of the inevitable. Take this idea and apply it to the commercial Real Estate.

Consider the ProShares UltraShort Real Estate (NYSE: SRS) chart. Simply looking at the chart for SRS tells us that the cracks in this way of thinking are just beginning to form. This ETF invests in the inverse of the DOW Jones REIT . This represents a gauge as to the trouble in the commercial real estate market.

As a double short ETF, for each % fall in the REIT(RWR), this ETF rises by 2%. What is notable is that for the first time in some time we’re seeing this ETF break the 20 day_and_50 day EMA in the positive direction. Should this continue it would be a sign of an impending commercial RE collapse. A break above these with a follow through towards the $9.00 area would be a telling sign of cracks in this market.

Keep your eyes wide open for these canaries in the coal mine.

Further reading material on the state of real estate in America:

http://www.reuters.com/article/idUSN0825553320100108