Investing for stable, steady growth PART 4

Yesterday afternoon (June 5) I posted this quick update on facebook:

“US stocks were weak again today, but not weak enough to confirm that the long-term plunge has begun, if we do not see a 2% or greater drop tomorrow (intraday), then I expect another week or more of rebound before the capitulation phase begins and and the tide “takes over the waves.” If there is at least a 2% drop early tomorrow, it could be much larger by the end of the day. That will be a huge profit for a small number of investors and a small loss for a huge number of investors.”

While stocks were somewhat weak early today, the 4% decline of the last 7 or 8 trading days is NOT a clear capitulation (panic). So, if the small rebound that started today can hang on for another few days, I think that the US stock market might squeak out one more new high. (That means a recovery of the 4% drop since last week’s high. I forecast on May 21 the recent decline: https://jrfibonacci.wordpress.com/2013/05/21/investing-for-stable-steady-growth-part-2/)

bullish or bearish US stocks (DJIA)

However, even though the decline so far has not been a panic, before long, prices are likely to plunge, which is being confirmed in the last few weeks because the buying activity is clearly “exhaustion-buying.” Momentum data (TRIN, A/D,  etc…) show that it is taking a huge amount of buying just to keep prices as steady as they have been- dropping only 4% since last week.

Using common methods like leveraged investing (like how people borrow 50% or even 90% of the funds to invest in real estate), it would be simple to have made gains of between 8% and 40% in the last two weeks from this easily predicted decline. Leveraged investing would include purchasing leveraged funds (leveraged ETFs) or “margin” trading.

Using “cash only” for investing in unleveraged inverse ETFs, one could also have made  4% (without any short-term repositioning, though any competent trader would of course adjust position across the last few weeks if they had the buying power to do so). However, of course, the vast majority of people investing in complacency simply lost 4% across this easily predictable downturn. Given the “internal weakness” shown in the downturn, it confirms my longer-term forecast, but also has me expecting another wave of buying before unscrupulous buyers exhaust their buying power and a dramatic collapse of price ensues as panicking investors suddenly (over the next few months?) go from complacent to shocked, disappointed, frightened and anxious, etc…. Their under-estimation of risk is perhaps only exceeded by the incredible under-estimations of risk by aggressive real estate speculators in the US (and Europe, etc…).

Pioneers Festival Investors Day

Pioneers Festival Investors Day (Photo credit: Heisenberg Media)

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