Time To Grade The Financial Markets and Yourself – Mike Swanson (06/07/2016)


By Mike Swanson on Wed, 06/07/2016 from: http://wallstreetwindow.com/

With the S&P 500 at 2,100 it’s now time to grade the market and your own performance.

The stock market went up yesterday following the Yellen talk in which she said the economy is doing good, but she can’t raise rates now, because it’s not doing good, but wants to do so in the future.

Expect her to stick now to this line for months on end.

It is now time though to step back and see what is happening not just to the US stock market, but to ALL financial markets so far this year.

Here is an interesting performance chart from Finviz.com showing how everything has performed.

Take a look.

So the S&P 500 is up 4.3% as of this morning year to date while the Nasdaq 100 is red.

Of course it is a basket of soft commodities leading the way this year and silver and gold, with gold up 16.5% year to date, which makes the performance of the S&P 500 look like a total joke.

At the top of this graphic much of what you seeing are big gains that are coming at the start of new bull markets, although I’m skeptical that oil is actually starting a new bull market this year).

But this is where the money is going.

To beat the market you cannot be one of those people that puts all of their money in the US stock market in hopes of making some giant killing, but instead you need to spread out in what is really working and going up for real.

Today the market is gapping up and US stock market bubble bulls are excited, because the S&P 500 is above 2,100 today, but it could dump on them today who knows.

There are people on margin in this market dreaming of a giant stairway to heaven run, because they love to gamble it up.

This year I have been warning of the risks in the stock market as I did last year and I publicly talk about shorting and betting against stocks – and I have some bets against junk POS stocks. In fact I just shorted a new debt buyback disaster stock the other week.

As a result I get angry messages from these bubble bulls, because they hate hearing from someone who is not chasing their favorite market fads and Cramer picks.

One email I got yesterday demanded to know when I will “capitulate” and give up on being cautious on the stock market and start to buy.

He said the S&P 500 is going to go above 2,100 by year end.

He assumed I was somehow losing money.

Well I looked at my account today and I’m 10.66% year to date in my largest account.

This can change tomorrow though and a few weeks ago I was up just over 4% as I had a dip myself with a pullback in many of my long positions (although that was still better than the S&P 500 at that time too).

The important thing is that I’m beating the stock market like crazy so far this year and I have no doubt that I am probably beating this bubble bull too.

So when he makes assumptions in his bubble brain that people who are not all long the US stock market ETF’s and stocks like Facebook and Apple are “missing out” he is totally deluding himself.

I own both long and short positions so am operating like a hedge fund and using the ETF rebalancing strategy I talk about with the bulk of my money.

What the market does today or tomorrow isn’t that important to me (although I think it’s just a dead stock market that will lead to a big drop later this summer).

It’s time to grade the markets and yourself.

Are you beating the S&P 500 this year?

It’s actually not hard to do that, because so many new bull markets are starting outside of it and it hasn’t really done much this year.

Just look at the chart above.

If you are fully invested in lots of stocks and not beating the market that’s not because you cannot pick out stocks, but because most stocks are simply dead now.

Apple is the poster boy for dead stocks, because everyone owns it and just about everyone who bought it in the past 18 months is losing money.

That’s because we are in a nasty market with a lot of problems in it.

What the stock market bubble bull doesn’t understand is that there is more to investing than just buying into the US stock market and hoping that it will go up again like it did in 1999.

To invest properly you need to diversify into a mix of markets and asset classes, because the times of watching the US stock market go up to new highs and beyond month after month are over and will not come back now FOR YEARS.

And if you want to buy individual stocks you need to be buying mining stocks, because that is where the action is now.

And if you still want to just trade the US stock market you need to be able to move in both directions.

Boosting returns through safe diversification and not desperate gambling or “fast money” style plays is what I advocate.

It really isn’t about predicting the future like most people think or talk like it is.

If you never read my last book The Stock Market Bubble Bust of 2015 and Beyond now is a good time to do it, because it lays out a simple money management and asset allocation strategy that anyone can use and is what is enabling me to beat the market this year with little worry.

If this is the first time you have come to this website get on my free update list for more by clicking here.

Why Do Stock Prices Fall After Good Earnings Announcements?

It’s happened to many novice stock traders. You’re on your way into work and you hear on the news that some well known company announced great earnings after hours the night before. You’ve been waiting for an opportunity so you decide to buy as soon as the market opens.

Stock-MarketDespite the fact that the price is already up 10% or more at open, you make your purchase and sit back to watch the fun. Things go extremely well for the first half hour. The price rises a good 10% further and you congratulate yourself on your wise purchase.

Then, about 30 minutes into the trading day the stock does something remarkable. Its price rise turns and the price begins to drop. It drops quickly and within an hour loses all the gains for the day. It doesn’t stop there too. Aside from one or two buying flurries it continues it’s downward momentum and ends the day down 10% on opening price, leaving about a 10% gain on the closing price the night before.

Over the next few weeks the stock price continues to decline and by the time it slowly turns positive again a couple of months later it has lost 30% on the price you bought it for on earnings day. So what happened? What we are witnessing here is classic manipulation of market hype by the ‘smart money’ to take money off the ‘dumb money’.

The smart money are the 3% of traders and investors who make money trading the markets and the dumb money are the rest who lose money, usually to the smart money. You get the picture.

The answer to this is to look at what the smart money did. Emulate their strategy and you too could find yourself on the winners’ side for once. The answer is simple and obvious, all it needs is pointing out. If we search through a few well known company 12 month stock charts it won’t take long to identify one which has been doing this, ie. showing consecutive quarters of meeting or beating market expectations, then dropping in price before heading up again to their next earnings announcement three months later.

The smart money strategy should be clear. Buy ahead of the earnings announcements and sell to the buyers on the day of the announcement, preferably during the first 30 minutes of market opening, during the buying ‘frenzy’. That’s all they have to do.

As the smart money dumps their stock and the buyers start to dry up, the stock price falls, eventually over the next few weeks to what could be considered a ‘fair price’ of some 20% lower. This happens all the time and the dumb money falls for it over and over again.

In terms of time frames the best time to buy in would be about four to six weeks ahead of the earnings announcement. You need to get in as the price starts its steady climb upwards. This will happen between four and six weeks prior. Too early and you may find yourself getting stopped out at a loss. Too late and you may miss the early gains.

Getting in at the right time can however means gains of 25% or more leading up to the earnings announcement, and that’s before hype drives the price up after the announcement. Statistically the sweet spot has shown to be in the few days leading up to the one calendar month ahead of the earnings announcement.

Use the ‘Ten Steps’ buy in strategy shown in the website link at the end of this article to secure your position and mark in your diary to check the after hours announcement and be at the ready as the market opens the next day. Once you’re secured your position and your stops are at or above your buy price, follow the price of the stock upwards over the next few weeks. Keep your sell-stop well clear as there’ll likely be some turbulence on the way up.

Then use one of the following three exit strategies depending on the results announcements:

Company beats market expectations. If previous earnings patterns hold true (as it should) then expect the price to jump overnight and start the next day up. Let the initial buying frenzy drive the price up still further and then sell at market price between 15 and 30 minutes after opening. Total gains for this trade could be anywhere between 30% and 50%.

Company meets market expectations. This would mean less hype and less of a buying frenzy at market opening. Gauge market sentiment and be prepared to exit at market price at market opening. Total gains for this trade could be anywhere between 20% and 30%.

Company fails to meet expectations. If previous earnings patterns fail to hold true then exit at market price at market opening. Total gains for this trade from the weeks leading up to earnings announcement could be anywhere between 10% and 20%.

You can see that, aside from any large scale ‘force majeure’ which overshadows normal stock market movements, no matter which way it goes you will still profit from this stock trading strategy.

Learn more about the Ten Steps To Profitable Trading, the best trading strategy at http://besttradingstrategy.com

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