By Poly

This is an excerpt from this week’s premium update from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. Now offering monthly & quarterly subscriptions with 30 day refund. Promo code ZEN saves 10%.

The FED’s easy money has encouraged rampant energy speculation and over-investment, resulting in more than $500 billion in new loans and investments in just the past 4 years. And so long as Crude prices stayed comfortably above $90, investments made money and everyone was happy. But once energy prices started falling, the decline quickly became a negative loop-back effect because the very high levels of leverage could not tolerate the move. Whenever asset prices fall in a highly levered market, there is often a sudden lack of liquidity to absorb the speculators’ need to unwind leverage, leading to desperation and fire sales. In the case of energy, the sudden disappearance of “investors” highlights just how speculative the underlying market had become.

It’s not exactly a Black Swan event, since Crude and other assets occasionally move with incredible ferocity. But to a highly levered and speculative population who chose to ignore the risks as being far too improbable to worry about, it’s a situation where debt cannot be offloaded at any reasonable price. At $55 bbl Crude prices, much of the new debt simply does not work, meaning that significant energy company junk bond defaults will occur. Although this is obviously bad for the energy complex, it also has very real implications for broader systemic risk.

The only saving grace may be that it appears that Crude has entered the final, vertical decline of the crash. A bottom in the $50 range is in no way guaranteed, but it is likely that the low will come in the near future. Notice on the below chart that the current move down started from a June top. Since then, we’ve had no better than a Day 3 Cycle top, showing just how extremely Left Translated recent Cycles have been. The chart also shows how relentless the downward move has been, and the 3 distinct channels it has taken. Within each channel, the declines have taken on a steeper, more vertical aspect, to the point that Crude prices are now near free-fall.

Crude blowoutWhen a market enters into crash mode, there is no way to know where it will bottom. Unlike Crude, the energy producers have, to date, held up relatively well. And recently, they put in a very convincing counter-trend rally at the same time Crude appeared to be finding a bottom. But unless Crude does find a bottom, and quickly, the energy producers will, I believe, be punished with extreme prejudice, as we’ve yet to see “crash-like” selling in many of the names.

As is clear on the below chart, Crude was already deep into the timing band for a Low when energy producers rallied, fooling everyone into believing that a new Cycle was already underway. (more…)

By Chris Ebert

The Future is Not Predictable

The job of a stock market trader may seem simple; learn how to predict when stock prices will go up or down, and then buy at low prices and sell at high prices. Alternatively, since stock prices have tended to rise in the long run, despite temporary declines, buying stocks and holding them for several years – investing – may seem like an almost-guaranteed method of ensuring that the selling will occur at a higher price, without the need to make the predictions involved in short-term trading.

the futureIn reality, neither trading nor investing is as simple as it might appear. Each is fraught with obstacles that have the potential to lead one into financial ruin. That’s because each method, though quite dissimilar, is based on the same paradox.

Short-term trading involves predictions about how stock prices will move in the near future. Long-term investing, though generally not concerned with the near future, nonetheless involves making a prediction – a prediction about the distant future. There’s just one problem: the future hasn’t happened yet, so it can’t be predicted.

Therein lies the paradox. Participating in the stock market involves making predictions, yet predicting the future is impossible. In that regard, short-term trading is no different than long-term investing, in that each involves predicting that which is impossible to predict.

Patterns Tend to Repeat

It is true that the past may yield clues to the future. Patterns of stock prices do have a tendency to be repeated, particularly patterns that have proven beneficial to those participants who have the ability to induce them. Let’s face it; if a pattern didn’t benefit someone, it’s unlikely it would be repeated. The fact that a recognizable pattern exists lends credence to the likelihood that such a pattern is being exploited by some, for their benefit.

A pattern with a name suggests that such a pattern has been repeated with enough regularity for someone to recognize it, label it, and for others to then adopt the use of the name when they themselves recognize it. Pattern recognition is thus one of the only means by which the ordinary stock market participant can expect to profit, since it is among the few (more…)

By Poly

This is an excerpt from this week’s premium update from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. Now offering monthly & quarterly subscriptions with 30 day refund. Promo code ZEN saves 10%.

The train wreck that is crude oil continues, now having become a fully-fledged crash with seemingly no end in sight. Not exactly an original idea at this point in the decline, but I was right this past weekend to sense continued weakness within Crude. That massive, one day reversal did show promise of Cycle Low, but it’s clear now that it was indeed only a one-shot wonder designed to drawn in eager, bottom hunting speculators.

My crude oil analysis for the immediate future is rather simple, mainly to not hold any expectations. This is an asset clearly in crash mode and therefore where it finds its eventual bottom is impossible to tell. As I’ve stated before, there are no clear Cycle Lows to base any opinions or position off, so Cycles are of no help too. And even if there was a clear marking, Crude is locked in the type of decline where no indicator or study should be used to predict a bottom. We just need to let this crash play out, despite record bearish sentiment and extreme oversold readings.

12-10 Crude Daily

 

We have finally locked in our webinar for December 17th at 6:00 pm.  Please follow this link and signup early as space is limited.

We will be discussing the potential for more volatility and setting a strategy that is easy for traders to follow and profit from.

The Markets

Jeff’s timing signal is now suggestion we are on the brink of a correction that could wipe out much of the gains that we’ve seen from October’s low. I have illustrated the potential for new legislation near December 24th that in essence is massive money printing.  Disguised as a finance bill what it really means is more QE, bank bailouts etc.

The shift in market volatility is timed to the Moon phase over the weekend.  As I suggested, an irritating influence is sweeping over the international economies and the markets are reacting.  Jeff is providing a chart that suggests a top could be in for the Dow Jones.  We could still see another bounce into the end of the year, however, there is not enough good patterns in the astrology  until we get to March 2015 to produce a “lottery fever” in the markets here.

indu