BEATEN DOWN?
This shows the stock market today, with a tiny little red "candlestick"
showing the month of December at the top right. I have highlighted it
with a yellow arrow. It would be hard to see it at all if I didn't. Does
that look "beaten down" to you? That tiny little red mark, if I had
left all the technical indicators on the chart (I removed them so that
this "beaten down" red mark could be seen more easily), would be close
to the upper Bollinger Band, which indicates two statistical standard
deviations outside of normal market activity.
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I'm still struggling to find that "beaten down" part on this chart. |
So when the media tell you that stocks were "beaten down", show them this chart and ask them WHERE the "beaten down" part is.
It
IS true that until today, stocks had closed lower 9 of the past 12
days. But the losses were relatively small, as evidenced by this chart,
while the few days in the green showed much higher gains. One of those 3
"up" days had a gain of 200 points. That is another sign of the bubbly
overbullishness of this market.
Interestingly, in his very
arcane book (I had to borrow it from a university library, where only 3
other people had checked it out in 10 years), "Why Stock Markets Crash"
by Swiss academic Didier Sornette, he mentions that one characteristic
of a bubble is that the news media become cheerleaders for the bubble,
buying into and promoting all the hype! They become tools in ramping the
bubble even higher.
But ask yourself this: If the economy is
doing so well, why has the Fed been using "unprecedented measures"
(Bernanke's own term for all this QE) for FIVE YEARS? Why are we still
on life support if the market is so strong? Does that make sense to you?
If these "unprecedented measures" are so effective, why are
they still using them five years later? Does that really suggest that
they have been INeffective instead? (In which case, if they DON'T work,
it would be logical to eliminate them instead.)How much further will this bubble rise? I DON'T KNOW!
But we
would be wise to be wary, because the classic pin prick of a bubble
usually comes in the form of some news event that typically wouldn't be
all that significant, but that causes an abrupt and precipitous loss of
confidence that sends markets literally crashing.
If you look at
market crashes, they tend to collapse much more rapidly than they rose.
If they were rising at a 30 or 45 degree angle, then they tend to crash
at a much sharper 75 degree angle.
All it takes is one small
event that causes an abrupt awakening, and everyone runs for the exit
doors at once. That is, in the words of Sornette, "why stock markets
crash".
And by the way, the attitude held by investors that they
will be the first ones to find an "exit" chair when the music stops
playing, is another classic characteristic of a bubble. All the players
on Wall St believe that THEY will be one of the fortunate few that gets
out the emergency exit door when the trigger event occurs. That is what
causes the mad and hysterical rush for the doors -- that one seat in the
game of musical chairs -- when the music stops and the insane clamor
for safety begins. And that is also why it is Main St investors (on Wall
St they call them "retail investors) that get slaughtered and suffer
the greatest losses when bubbles pop. Main St investors tend to hang on
in the hopes that the market will turn around and redeem them, so they
don't throw in the towel until well after their losses have produced
staggering losses. And Wall St counts on continued buying by Main St to
allow them (Wall St insiders) to get OUT the exit doors first. They
depend on Main St continuing to hang on while they literally "take their
money and run" for the exit doors.
Note
also that in this poor little "beaten down" stock market chart, stocks
have barely looked backward since mid-2012. There hasn't been a single
month of downward market correction since May 2012. Even the few months
that closed in the red were still part of a trend higher. So in the face
of economic weakness, stocks have continued an unabated rally without
looking back since then. Isn't that a classic description of a bubble?