You call this a correction?
The Nasdaq is down 4%, Russell is down 5%, the Hang Seng is down 6% and the FTSE is down 3.6% but barely a pause from the rest of our Global Indexes. The problem is, it's been so long since we had a proper pullback that people think a tiny little correction is the end of the World. Even in the good old days, before high-frequency trading made a joke out of the market – investors didn't get too upset about a 5% pullback.
So the company uses it's profits, not to invest in it's own future but to prop up it's own stock price – making earnings seem better because you are dividing the profits by a lower number of shares than there were last year. This inflates the stock price and the insiders get out and that's when you buy – is that about right?
What a friggin' scam - I can't believe you fell for that! Seriously, that is such an obvious fraud that you would think people would run screaming away from equities. The problem is, there's nowhere to run to, is there. Your cash is being devalued, bonds don't keep up with inflation, real estate is still very iffy and the taxes on it have gone out of control and that leaves good old equites as the only alternative – so of course the market goes up, as long as the money keeps flowing in.
But therein lies the rub: So much of the money flow is based on stimulus from various Central Banks that we have no idea what is going to happen when it stops, let alone when it reverses (assuming they ever decide to fix their balance sheets before the next crisis hits). Perhaps that's why, as you can see from the "Smart Money" chart above, there's been a run for the exits in 2014.
- Dow 17,100 (weak) and 17,150 (strong)
- S&P 1,990 (weak) and 1,995 (strong)
- Nasdaq 4,525 (weak) and 4,550 (strong)
- NYSE 10,875 (weak) and 10,950 (strong)
- Russell 1,125 (weak) and 1,135 (strong)
They're not all bearish, of course – we have bullish plays on YHOO (discussed last week), SLW, FAS (hedged) and CAKE but, yes, the rest are bearish but they are bearishly protecting our very bullish (and much larger) Long-Term Portfolio, which is now only up 19.3% for the year at $596,710. That plus the $153,413 in the Short-Term Portfolio gives us a total of $750,123 so it is time to raise our stop from $735,000 to $740,000, locking in a combined 23% gain for the year, even if we're forced to cash into the holidays.
We never fear going to cash at PSW. On the average, we find over 100 Trade Ideas each month for our Members, which is why our LTP is only using 25% of it's buying power – if the market does have a significant downturn, we are ready, willing AND able to take advantage of it.
Until the indexes show us they are capable of taking out those strong bounce lines, we reamain cautiously bullish. We EXPECT at least to see weak bounces off of these levels (up 0.5% today). If not – look out below!
Tags: 5% Rule, Bounce Levels, corporate buybacks, hedging strategies, insider selling, market correction, Money Flow, Smart Portfolio Management, Yahoo!, YHOO
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