Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Breakout or Fakeout?

admin by admin
May 4, 2015
in Uncategorized
0
0
SHARES
0
VIEWS
Share on FacebookShare on Twitter

X- Factor Report 03 May 2015

by Lance Roberts, StreetTalk Live

I have been discussing the potential resolution of the consolidation pattern that I have been monitoring for the past several months.

Let’s start with this past Monday’s missive:

“As shown in the chart below, the market has been remained trapped in a tightening pattern of higher lows and lower highs. This type of action is like the compression of spring. In the next few days, the markets will make an important decision. A breakout to the upside of this consolidation will confirm the current bullish trend, and portfolio actions should remain allocated and tilted more heavily towards equity related risk. However, a break to the downside will likely suggest a more significant correction in the near term. It is worth noting that this consolidation in the market is happening during a decline of relative strength. This is a warning sign that bodes poorly for the bulls.”

SP500-Consolidation-042715

“Since portfolios are currently fully allocated to the market, if the market breaks out to the upside of the current consolidation this will simply confirm that the ‘bulls’ are still currently in charge of the market. No action will be required.”

The upside breakout last Friday, which suggests that the bullish trend remains intact, keeps portfolios tilted towards equity exposure. However, as I stated then:

“…this does NOT mean that all market risk is now resolved, or that investors should return to their complacent slumber.”

Unfortunately, the selloff on Thursday failed to confirm that breakout. Let me explain.

First, the analysis I use is based on WEEKLY data in order to slow down portfolio management actions. If you are a “day trader” a more appropriate chart setup might be in 15 MINUTE increments. You might want to use DAILY time frames if you are more of a “swing or very short term” type. However, as an investment manager, I want to lower portfolio turnover and focus on longer term trends from wealth building purpose which requires WEEKLY or MONTHLY data points.

The importance of that note is that it is ONLY THE END OF WEEK CLOSE that ultimately matters. The reason is mid-week the market might take a plunge, but then quickly recover the next day. Therefore, by only using weekly ENDING data, portfolio positions are not “panic sold” due to “knee-jerk market reactions.”

Secondly, based on this weekly data, a “breakout” of a “consolidation pattern,” as discussed, requires that the price remain above the upper trend line. As of Friday, that FAILED to happen and, therefore, the “breakout” has been voided for now. We REMAIN in the consolidation range currently and will have to re-evaluate overall conditions next week.

SP500-Chart1-050115-2

The BULLISH note here is that the sell-off on Thursday tested and held, the current support trend of this particular consolidation. The BEARISH note is that the failure of the breakout continues a market consolidation process that could be a TOPPING process ahead of a more substantial correction during the seasonally weak summer months.

Importantly, we are effectively caught in limbo awaiting the markets to make a decision either bullish or bearish. With portfolios fully allocated currently, there is little need to “make a guess” but rather just be patient and let the market TELL US what to do next.

In order for the bullish trend to be maintained, a sustained breakout to the upside of the consolidation needs to happen soon. Momentum, relative strength and many other indicators are suggesting that the bull market cycle that started six years ago is rapidly “running out of gas.”


How Can A Market Get Overbought / Sold?

I got into a bit of a “Twitter Debate” last week on the meaning of overbought/oversold. The age old argument is that a market, or stock, can NOT get overbought or sold because there is a “buyer for every seller and vice versa.”

While the point is correct that there is a buyer for every seller…what is missed by such a simple argument is the importance of PRICE.

The correct statement should be: There is a “buyer for every seller at a specific PRICE.”

Here is a very simplistic model explaining it.

Buyer-VS-Sellers

When markets are OVERSOLD, it means that at a given price, the number of SELLERS willing to sell at that price have been exhausted. Therefore, if a buyer wants to make a transaction, the price will begin to move higher to find a new seller at that price.

Conversely, when prices are rising, there is a point where the number of BUYERS willing to buy at a given price are likewise exhausted. Prices then must begin to fall to find new buyers.

IF markets were simply a function of equal buyers and sellers – then prices would be linear. However, as shown below, that has never been the case.

SP500-SecularPeriods-010615

Recognizing that markets become both overbought and oversold is a primary tool for investors. While fundamentals are useful in determining WHAT to buy, it is PRICE that is the single best tool for determining the WHEN to take profits or sell a position entirely.

Importantly, as stated earlier this week:

“The market is currently more overbought now that at any other point in history going back to 1940.”

SP500-Overbought-Sold-042715

The vertical dashed white lines show that when the extreme overbought condition begins to decline it is coincident with past historical peaks in the market. Furthermore, the long term MACD (moving average convergence divergence) has also turned down which has also historically aligned with more significant market peaks and corrections.

Importantly, this overbought indication is “longer-term” in nature and is slow to move. This means that in the short-term, stocks can, and most likely will, continue to try and advance further due to underlying price momentum. As I have discussed previously:

The effect of momentum is arguably one of the most pervasive forces in the financial markets. Throughout history, there are episodes where markets rise or fall, further and faster than logic would dictate. However, this is the effect of the psychological, or behavioral; forces at work as ‘greed’ and ‘fear’ overtake logical analysis.

This is the basic application of Newton’s Law Of Inertia that states ‘an object in motion tends to remain in motion unless acted upon by an unbalanced force.’ In other words, when markets begin strongly trending in one direction, that direction will continue until an ‘unbalanced’ force stops it.

Currently, with Central Banks fully engaged in monetary interventions on an unprecedented global scale, there is seemingly nothing that can stop the current advance. Of course, it is that very “thought process” that has been a hallmark of exuberant markets in the past.


Reiterating Last Week’s Portfolio Management Rules

The combined overbought, overleveraged condition of the financial markets is of extreme risk to investors currently. While the bullish trend remains intact currently, it is extremely prudent to perform some risk management in portfolios.

“…it is worth remembering that portfolios, like a garden, must be carefully tended to otherwise the bounty will be reclaimed by nature itself. If fruits are not harvested (profit taking,) they ‘rot on the vine.’ If weeds are not pulled (sell losers), they will choke out the garden. If the soil is not fertilized (savings), then the garden will fail to produce as successfully as it could.

So, as a reminder, and considering where the markets are currently, here are the rules for managing your garden:

  1. HARVEST: Reduce “winners” back to original portfolio weights. This does NOT mean sell the whole position. You pluck the tomatoes off the vine, not yank the whole plant from the ground.
  2. WEED: Sell losers and laggards and remove them garden. If you do not sell losers and laggards, they reduce the performance of the portfolio over time by absorbing ‘nutrients’ that could be used for more productive plants. The first rule of thumb in investing: ‘Sell losers short.’
  3. FERTILIZE AND WATER: Add savings on a regular basis. A garden cannot grow if the soil is depleted of nutrients or lost to erosion. Likewise, a portfolio cannot grow if capital is not contributed regularly to replace capital lost due to erosion and loss. If you think you will NEVER LOSE money investing in the markets…then STOP investing immediately!
  4. WATCH THE WEATHER: Pay attention to markets. A garden can quickly be destroyed by a winter freeze or a drought. Not paying attention to the major market trends can have devastating effects on your portfolio if you fail to see the turn for the worse. As with a garden, it has never been harmful to put protections in place for expected bad weather that didn’t occur. Likewise, a portfolio protected against ‘risk’ in the short-term, never harmed investors in the long-term.”

With overall market trend still bullish, there is little reason to become overly defensive in the very short-term. However, I have this nagging feeling that the “spring” is now wound so tightly, that when it does break loose, it will likely surprise most everyone.

Have a great week.


Disclaimer: All content in this newsletter, and on Streettalklive.com, is solely the view and opinion of Lance Roberts. Mr. Roberts is a member of STA Wealth Management; however, STA Wealth Management does not directly subscribe to, endorse or utilize the analysis provided in this newsletter or on Streettalklive.com in developing investment objectives or portfolios for its clients. Please read the full disclaimer.

Previous Post

2010 Flash Crash Arrest Motivated By Greed

Next Post

Gasoline Prices for Week Ending 04 May 2015 Rose Over 9 Cents.

Related Posts

Tax Benefits For Bitcoin Firms In Belarus Extended Up To 2025
Economics

Tax Benefits For Bitcoin Firms In Belarus Extended Up To 2025

by John Wanguba
April 1, 2023
China Loans $240B As Bailout 'Belt And Road' Nations – Study
Economics

China Loans $240B As Bailout ‘Belt And Road’ Nations – Study

by John Wanguba
April 1, 2023
Will Ripple And SEC Settle?
Econ Intersect News

Will Ripple And SEC Settle?

by John Wanguba
April 1, 2023
Is The Biden Administration Politicizing Crypto?
Business

Is The Biden Administration Politicizing Crypto?

by John Wanguba
March 31, 2023
How First Republic's Befriending Of The Wealthy Led To A Crisis
Business

How First Republic’s Befriending Of The Wealthy Led To A Crisis

by John Wanguba
March 31, 2023
Next Post

Gasoline Prices for Week Ending 04 May 2015 Rose Over 9 Cents.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins bank banking banks Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business China crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi Elon Musk ETH Ethereum Europe finance FTX inflation investment market analysis Metaverse NFT nonfungible tokens oil market price analysis recession regulation Russia stock market technology Tesla the UK the US Twitter

Archives

  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Tax Benefits For Bitcoin Firms In Belarus Extended Up To 2025
  • China Loans $240B As Bailout ‘Belt And Road’ Nations – Study
  • Will Ripple And SEC Settle?

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish