I'm writing another one predicting another market top. It is intended for education purpose only and for my own argument what I should act now. Do not bet your money on my view and do your own homework.
After a month or so, I will 'freeze' this blog and all the updates will be in comments to this blog. This is used to measure whether my prediction is successful or not, as opposed to many 'gurus' writing after it has already happened or using double talk techniques (so they're always right).
My crystal ball.
* I expect the fiscal cliff has or will have some effects.
Very few times we have high investment taxes and a rising market at the same time. The Dow at over 13,000 is quite high except for the two considerations:
1. EU and our problems will be resolved soon, but they are not. When the good news appears, I would sell some of my holdings.
2. QE3 (if it happens) will drive up inflation and Dow at 13,000 would be far less in reality when inflation is factored in.
* All the window dressing in this election year will be erased early next year. I expect we may lose more than 10% (15% for dividend stocks) in Q12013. My crystal ball is as good as yours.
* I expect the bubble of dividend stocks will finally burst.
No winning strategy is good forever. The current premium on dividend stocks is just too high. It is a mild bubble though.
Unless there are last-minute changes in the tax rates, over 30% is too much. Most of us do not drive the market, but the big boys and his clients who are affected by this high tax rate will.
* 2015 still looks good unless there is another war.
* I expect the market will be up temporarily due to QE3 and it could be the best time to unload. I started unloading.
My actions.
* Reduce investment in equities.
* Sell some dividend stocks.
* Consider shorting, covered calls and contraETFs.
* Try not to invest except on high-value stocks. These are the bargains we need to buy and forget waiting for the economy to recover.
* Go away in May.
This time I may not come back to stocks in Nov. 1 (some years we should come back to equities in the more risky but more profitable Oct.). The market could be too risky by then. This is the time folks unload winners for low long-term capital gain tax and folks get rid of the dividend stocks. Will act according to how all these events are being developed.
* We need to know when to come back after the plunge. Is 10% down the resistance line? Are we heading to a w-shaped recession? A Japanese-style of lost decades? Would we miss the profit if we do not move back to equities (the May plunge in 2012 is a example)?
Only a prediction.
To me, the chances of the above to happen are higher than not to happen. Even if they will not happen, I treat them as a cheap insurance policy and have a sound sleep.
I do not do any research as many good ones are available in many magazines, journals and the web. I just summarize the ones I believe and act accordingly.
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(c) TonyP4 2012. Written in 9/2/12. Last updated in 9/2/12.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
(c) TonyP4 2012. Written in 9/2/12. Last updated in 9/2/12.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Today S&P is 1427 and we use it for start price to measure performance and the index for April 1, 2013 should be the end price.
ReplyDeleteI'll use the index on QE3 if it materializes.
I also use DVY (a dividend ETF) at 57.88 as the start price for my prediction.
DeleteI can only tell you the exact month if I had a time machine. If I knew the exact month, I could be the richest man in the world.
ReplyDeleteHowever, we've to see how events are being developed. It is described in the blog with all the arguments. Even with the right arguments, it may not happen as the market is not rational. Who told you the market is rational?
Market timing is not a science. I predicted correctly (within days) in April, 2012. It is a combination of luck and 'insights'. I guessed right several times: April 2000 (I moved most high tech sector funds to traditional sectors; should be cash or contra Funds if available), 2003 recovery and 2009 recovery (80% return for that year for my largest taxable account), and April 2012. Quite a good record so far. I guessed it wrong fewer times than I guessed it right. Past performance has no connection to the future.
However, I do not bet all the money in it as one misjudgement (sometimes you cannot control) could wipe out everything. Read my blog one more time and make your own judgement.
After the big drop, we have to decide when to move back to equity and that's the hard part. We all live in greed and fears. Check out other blogs in my site that would reflect my philosophy, I was accused by some ignorant ones from DG group that I used my comments here to promote my blog. I did not make a penny from my blog. What is my agenda and gain?
I can tell you that their bias costs them not making money on my prediction on market top in April 2012 that I posted it for them. If they forgot, just go back to my comments on April, 2012.
Joseph wrote:
ReplyDeleteCurrent market action seems to be pushing the limits of reason. For what it's worth I think we will move lower this month on the broad market and begin a move to the lower end of the 12 year trading range. I think we could test the 2009 lows in the next 6 months.
Corporate profits can't be sustained at these levels when we start to attack the deficit. To many consumers out there with reduced buying power due to the fiscal cliff issues.
We are entering a period of extreme austerity globally. The impact to profits will be substantial. I guess my point is that I think we may lower that price equilbirium relative to the S&P by 200 points or so - again totally subjective.
As to timing - my statement that markets move is true. So, as to timing if we are at the upper end of the trading range which we are the next move is down. The fundamentals are just to negative for a leg up much further.
Market action on Thursday and Friday is pretty telling and it tells me that there was a lot of profit taking on Friday. I think any further advances will be limited as the bids will be easily absorbed going forward. On thurday market makers took protection against the buy orders. They didn't do that on Friday.
Bold market call - we close lower this week and begin a dramatic leg down to the 2009 lows. Wow, I put myself out there on that one.
No sign of fixing the fiscal cliff. Sell military stocks and limit your high dividend stocks. QE3 seems to materialize.
ReplyDeleteThe estimate of corporate profits is over optimistic. You can cut so much. The market is weak. Consumers do not consume and corporations do not expand. EU, China, countries rich in natural resources... are all interconnected and all are feeling the big chill.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteReward / Risk is very low now. Time to get out. The market could still be higher but it is not for my taste. Market in all our major partners are not doing good, U.S. is still at the peak.
ReplyDeleteUnless there is sth I do not really know, the market will be down. If it does not and still continues, it will crash (not dip) at some point as the bubble will be burst.
Some dividend folks still think it is good for the market to crash, so they can buy more stocks with better yields. If so, why don't they dump all the stocks first and wait for the dip to buy back? Ignorance has no cure.
Too risky for me but it depends on your risk tolerance.
Doug Short said:
ReplyDeleteAs I've frequently pointed out, these indicators aren't useful as short-term signals of market direction. Periods of over- and under-valuation can last for many years. But they can play a role in framing longer-term expectations of investment returns. At present market overvaluation continues to suggest a cautious long-term outlook and guarded expectations. However, at today's low annualized inflation rate and the extremely weak return on fixed income investments (Treasuries, CDs, etc.), the appeal of equities, despite overvaluation risk, is not surprising.
It seems we've a market cycle already from 2007. The peak is 2007, the bottom is 2008, the recovery is 2009, the up is 2012, and the next plunge will be 2013 (questionable).
ReplyDeleteIf so, we really do not have a W-shaped bottom, but a full market cycle.
I see the best hope for the economy would be if we go off the fiscal cliff. That is, of course, not short range. It could be bad if Republicans lose the house because of it though.
ReplyDeleteThe strongest factor, by far, is new oil and gas. Especially if we maximize domestic use of it, while exporting coal, oil, and LNG.