August 29, 2011- Useful Links on US Markets

Philippine traders do not feel any tinge of difficulty within the markets, but Asian and US Markets traders are feeling differently.  So the US market rallied on an oversold condition.  Do we bring out our pom poms and cheer away this rally?  Here are some excellent links I’ve been reading, as well as a summarized version for each.

1.) Taken from  Pragmatic Capitalism : He believes that the US markets is in a bear market.  A big critical event of course is still what will happen on September when FED Chairman Bernanke’s intervention in the markets.

The Long Term Sell Signal (Technical Action Only)

When the market is oversold in a bear market, our first concern should be that prices, rather than advancing, will slide even lower because the buyers have left the building. That doesn’t mean that the market can’t rally. It does mean that the market is less likely to rally, and, when it does, the rally is likely to fail. On the left side of the chart I have annotated a portion of the last bear market, which illustrates dismal price performance in spite of oversold indicators.

2.) Scott Grannis – Valuations “Corporate profits are fantastic—what’s wrong with equity prices?

Stocks are very cheap by historical standards, and the last time they were this cheap, in the late 1970s and early 1980s, was an excellent time to invest from a long-term investor’s perspective. Skeptics would counter by saying that this time is different, because 1) politicians are incapable of spending restraint, so taxes are going to rise significantly, 2) the economy is going to be miserable for the foreseeable future, pushing profits way down, and 3) the Fed’s super-accommodative monetary policy is going to push inflation and interest rates much higher. Maybe so, but that’s about what it would take to justify the current level of prices.

Bottom line: you have to be very pessimistic about the future in order to not like equity valuations today.

3.)Psy Fi Blog- Perfect Article for Long term investors! Welcome to the world of asset price volatility.

This price variation is what we call volatility and learning to live with its psychological effects is a crucial step in learning how not to invest.  In reality, of course, we don’t have a way of assessing the value of our homes on a daily basis, so we don’t tend to worry about it too much. With the shares we own, on the other hand, we have instantaneous access to what millions of other people think is the right price and this varies from hour to hour and day to day. If you spend your life tracking your portfolio’s valuation this is enough to send you mad.
Markets tend to fluctuate wildly when people can’t get a handle on what’s happening and start to panic.
Volatility is simply the outward sign of humanity’s inveterate psychological weaknesses. Learning to love it is probably beyond us, but worrying about it unnecessarily isn’t really going to help. Basically, tracking share prices on a frequent basis is as bad for our mental health as tracking the prices of our homes would be, if we could. We need to check them as often as we need to, which is far, far less often than we really want to.
Unfortunately sometimes the best way of controlling our psychological twitches is simply to practice avoidance. Think of it as a form of tantric investing and learn to control yourself: it’s much more pleasurable in the long run!
4.) Guy Lerner’s “The Technical Take” – August 27, 2011 – recap – The Dumb Money is Bearish is a Bullish Indicator.

There are risks.  In any case, I would rather be a buyer here than 15%  ago, and I believe the data is on my side.

Several other points are worth noting.  One, failed signals are an ominous sign of significantly lower prices.  I would consider the prior bull signal (see the June 12, 2011 commentary) a failed signal (see “A Floor has Been Set”), and the result speaks for iftself.  Two, this is a bear market until proven otherwise; therefore, this is a counter trend trade.

– The Faceless Trader

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