Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Economic Crisis Not Over but Stock Market Rally Can Last A Few More Quarters

Stock-Markets / Stock Index Trading Jul 29, 2009 - 06:39 AM GMT

By: Money_and_Markets

Stock-Markets

Best Financial Markets Analysis ArticleClaus Vogt writes: You might be familiar with this common example of probability theory: The exercise of drawing colored marbles from a container.

Half of the marbles are white, the other half are black. You remove one marble, write down the color, and put the marble back in the container. Then repeat the process, again and again.


In the short run you may experience streaks of drawing one black marble after another. It might happen three times in a row, five times in a row, even ten times in a row.

However, these short-term results do not change your long-term outcome — the fact that you’ll draw black marbles half of the time and white marbles half of the time.

When investing, this same law holds true. Some decisions will turn out to be losers. In the long run, though, you’ll earn money if your methodology has an edge.

Let me explain …

A Disciplined Approach Is My Edge …

Is Buffett just a lucky guy, or does he hold an edge when investing?
Is Buffett just a lucky guy, or does he hold an edge when investing?

The “random walk” approach to markets supposes that 50 percent of the marbles in the bucket are white and 50 percent are black. Accordingly, nobody can achieve more than the market’s average performance, and Warren Buffett was just an incredibly lucky guy.

I don’t think that premise is true. And I believe that Buffett’s long-term success proves this point.

In my opinion, the world of investing does not always deal with 50:50 chances … sometimes there are buckets with more black marbles than white ones by a wide margin and vice versa.

My indicators are geared to inform me when this is the case. And they tell me when the buckets hold special opportunities or unexpected risks.

I may still encounter a streak of losers in the short run. But in the long run, I’ll make money because my winners will outweigh my losers by sticking to my disciplined approach.

How My Approach Works …

When there are more white marbles than black ones, I run with the bulls.
When there are more white marbles than black ones, I run with the bulls.

If black marbles represent falling stock prices and white marbles represent rising prices, it becomes clear what to do: Whenever black marbles are a majority I implement a bearish strategy; whenever white marbles dominate I run with the bulls.

For example, when the yield curve is inverted, and the year-over-year percent change in the Index of Leading Economic Indicators (LEI) is negative three months in a row, chances are extremely high that a recession will follow soon.

In this case let’s say, that 90 percent of the marbles in the bucket are black. Whenever this rare condition is given I’ll get out of stocks and buy inverse ETFs and long-term Treasury bonds. The last time this condition prevailed was in 2007.

Technical analysis is just one part of my approach. Longer term, fundamentals and macroeconomics are the financial markets’ driving forces. But markets can stay irrational much longer than you might think. That’s why it pays to take technical analysis seriously … at least when compelling signals are generated.

And that’s precisely the case right now. Take a look at the chart below …

S&P 500 Index

Source: Tradestation

Last Thursday, the S&P 500 index rose above its June high. In doing so, it’s showing an important bottoming formation: A huge head and shoulders bottom. Rising volume and strong market breadth confirmed the buy signal. Additional proof came from foreign markets showing more or less the same bullish pattern. And from the 200-day moving averages, which are in the process of turning around as well.

I take these signals seriously. They’re telling me to expect a continuation of the bear market rally off of the March lows.

I deem it probable now that this rally will have legs. And I expect the markets to keep rising and not come under serious pressure again until the second quarter of 2010.

I use the LEI to back up this view. It moved up from minus 4.0 percent year-over-year in May to minus 1.2 percent in June. This clear improvement points to some kind of an economic rebound.

No, the crisis is not yet over. Longer-term fundamentals are strongly against a more optimistic outcome. But a few quarters of a shallow economic recovery, caused by the huge stimulus programs all over the world, is the most probable outcome now.

In other words, all my indicators are telling me the jar now has more white marbles in it than it did just a month ago.

Best wishes,

Claus

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules