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UNCOMMON COMMON SENSE
For People Who Think
There is no question we have a barrel of
troubles from the Devil of Inflation to the Deep Blue Sea of Deflation. To
make matters worse, there is a worldwide financial crisis brewing, massive
unemployment, political strife, massive strikes and WAR is in the winds. Is
this the kind of news that is likely to start a stock market rally that could
breakout to a NEW, ALL TIME HIGH?
Well to
start off with, you should not be surprised. As you all well know, I am
certainly not one of those Pollyanna’s that always strokes everything
the Government says or does. BUT I have been warning you about this kind of
rally into the elections for some time now because of the historic 90%
correlation between a rising stock market into the elections and the sitting
President getting re-elected. And you know dammed well Obama will stop at
nothing to get re-elected, even going as far as to embracing Israel. As for
the Government fudging facts and figures, he firmly believes that anything he
says or whishes for must automatically be true and
he has a flunky Press that parrots anything he says as if it was the gospel and
will not challenge him on anything.
But all
that is mostly just conjecture. Let’s see if we can find some cold hard
reasons to back up all that speculation.
SENTIMENT (you all know that I am the
personification of a contrarian)
Just this
past Friday, the American Association of Individual Investors (AAII) released
its latest sentiment readings. Seems the bulls have definitely gone into
hibernation. (I thought only Bears hibernate.) Bullish sentiment dropped a
full eight percentage points to 22.19%, one of the largest weekly declines
ever. That was in the face of a
2% rally, both of which are close to the most BULLISH signs these contra
indicators can give. When bullish
sentiment drops below 25%, stocks (almost) always rally over the next three
to six months. When the reading drops to two standard deviations below the
average, stocks rally 100% of the time. Currently, the long-term average is
38.9%, with a standard deviation of 10.6.
So
yesterday’s reading of 22.19% is more than one standard deviation below
the long-term average, which means there’s roughly an 80% chance stocks
will rally over the next three
months. Here’s the key, though. If the reading drops another
three-and-a-half percentage points, it would be a full two standard
deviations below the long-term average. That would mean there’s a
virtual lock that the markets will rally over the next 3 months.
To make a
long story short: Based on the extremely low levels of bullishness in the
market, the time to buy stocks is now. But that is not my only reason for
calling for this rally. There is also extremely bearish analyst sentiment,
negative unemployment trends, a less than stellar
earnings reporting season and the fact that it’s an election year. Then there is also a bullish scenario that allows for
more upside over the next several weeks, due to last week's Hindenburg Omen:
The Omen has a shelf life of four months, which takes us to November 24th. It
means a stock market crash can occur any time between now and then, including
as late as November 24 (after the Elections). It means market conditions are
extremely unhealthy at this time. We have seen time and time again where,
after a Hindenburg Omen occurs, a stock market rally follows, most likely due
to the Government’s Plunge ProtectrionTeam
pumping up the market. This Omen is saying there is a 28 percent chance that
a Black Swan event is out there in the not too distant future and markets
will tank off that event. There is no point in speculating at this time as to
what that event could be, but this indicator is warning there is a far
greater than just a random possibility of a problem event striking global
markets before December. We have seen this Omen be right too many times in
the past to not take it seriously. I don’t believe in coincidence that
an Omen occurred just as the multi-decade, multi century, Jaws of Death
pattern is nearing completion. (Just another coincidence?
I think Not.)
Bottom Line: Should bullishness drops below 19%,
stocks rally 100% of the time by double-digit margins. Should
Obama be reelected there is a virtual certainty the markets will crash:
Shorter-term, there is a an absolute certainty, given the USA and
Europe’s economic conditions; that a coordinated easing is coming as
both the FED and the ECB have meetings scheduled for this coming week.
Then, there is also a Bradley model turn date scheduled for the July
28th week – Are all these OMENS coming together at the same time, Just
another coincidence?
If all that has not been enough, My primary personal PM indicators
also gave me a buy signal for GOLD and SILVER. Last Friday's powerful rally
was a 90 percent panic buying up day generating a new buy signal in my short
term Secondary Indicators. And just to make sure everybody is happy, Gold and
Mining stocks are also now on a buy signal as of Thursday, July 26th.
THE BEST INDICATOR OF ALL is that I have never been as one SIDEINGLY
Bearish as to the fundamental outlook on the World’s Economies and
stock markets with the possibility of a complete Financial Breakdown staring
us all in the face. If that is not the ultimate Contrarian buy signal, I
don’t know what is.
However I AM ALSO THE MOST BULLISH THAT I HAVE BEEN since December
2000 on GOLD AND SILVER, but unlike the market which has none if any bullish
fundamentals: GOLD’S fundamentals could not be any more Bullish. (check
out my last few missives)
Believe me when I tell you that this was a very difficult prognosis
for me to write. The only question that remains is,
Can I pull the trigger on the general stock markets tomorrow. When the safer
play is to build cash and continue to buy gold and silver bullion and stocks
into my $6,250 by 2017 target date?
GOOD LUCK AND GOD BLESS
Always
remember to use your stops
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UNCOMMON
COMMON SENSE
Dr. Aubie Baltin
CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm Beach Gardens FL 33418
uncommon@aubiebaltin.com
Please Note: This
article is for education purposes only and is designed to help you make up
your own mind, not for me to make it up for you. Only you know your own
personal circumstances so only you can decide the best places to invest your
money and the degree of risk that you are prepared to take. The Information
and data included here has been gleaned from sources deemed to be reliable,
but is not guaranteed by me. Nothing stated in here should be taken as a
recommendation for you to buy or sell securities.
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