Dow Jones Industrial’s, Fed Rate hike & Dr Copper

Dow Jones Industrial's, Fed Rate hike & Dr Copper

This update will be short and sweet. First, we would like to wish you all very Christmas and Happy New Year. Before the Fed meeting, we warned our subscribers that the masses would panic and do exactly the wrong thing and precisely the right time.  Individuals started pulling money out of the markets and ploughing into money markets.   We advised our subscribers to view all strong pullbacks as buying opportunities:

The trend in all major indices is now positive, and this means that the 17150 low set on the 12th will most likely not be taken out.  At this point, the simple strategy should be to use all strong pullbacks to open new positions or add to your existing positions.  Market Update Nov 30, 2015

Before the Fed raising rates we made the following statement:

The Fed might raise rates, or it might not; a rate hike is already priced in.  However, it will not alter the outlook that hot money is what is propping this market up.  The philosophy of using strong pullbacks to open new positions continues to pay off.   As long as the trend the trend is up. Market Update Dec 7, 2015

The markets started to rally before the Fed announced its decision and then sold off after the decision was announced.  This sort of action is normal when volatility is high and based on our V-indicator, that measures market Volatility; the readings are sky-high at the moment. So such extreme action is to be expected.  As long as the trend indicator remains bullish, we will view all strong pullbacks as buying opportunities.

The masses continued to pile money into junk bonds focussing on the word bonds as opposed to junk in their quest for safety; ultimately they jumped from the frying pan into the fire.  The economy is in trouble, and the recovery is all smoke and mirrors. If the outlook were so fantastic, then 76% of Americans would not be living from pay check to pay check, and when inflation is factored in, salaries would not be heading downwards instead of upwards. In fact, since 2000, most salaries have been trending downwards.  The so-called low unemployment numbers mask a dark reality

  • Most of the jobs created are low paying or part time jobs
  • The BLS does not count individuals that have stopped looking for work. The real unemployment level if one takes the optimistic view is around 15% and probably closer to 20%
  • Salaries have been trending downwards since 2000 while the cost of almost everything has risen
  • As stated earlier 76% of Americans live from paycheck to paycheck and the numbers are only set to increase

Dr Copper once known as a leading indicator has been relegated to the dustbin of time, not because it has lost its value as a leading indicator, but because hot money is masking the true signal this market is issuing. We covered this in an article titled Dr Copper, economy and stock markets no longer dance to the same beat. Copper’s massive divergence from the stock market indicates that this market is held up by spit and mud, albeit quite sticky spit, and that the rate hike was just a trick by the Fed to fool the masses into thinking that all is well. In the end, the Fed is going to have to find some way to flood this market with more money.  We are now in the “devalue or die” era. The best way to achieve this is to pretend you have the interest of the masses at heart and come out with a new stimulus program. However, the stimulus is always directed towards banks and large corporations and never to the individuals that really need it.

If all the data is bleak, what does the future hold?

Against this backdrop of negative news, one would think that the only way out is to jump out of stocks and short the markets. Actually, that is precisely what you should not be doing; the markets are being driven up by hot money, the stock market is operating independently of the Economy.  Thus despite what your gut instincts tell you, the last thing you should be doing is shorting this market.

Mass psychology clearly states that markets only top when the masses are euphoric; the masses are nowhere near jubilant at the moment. In fact, one could argue that they are either pessimistic or sitting in the neutral camp.

The Fed hike is nothing to fear and as we have stayed all along it is a non-event as we as we indicated in the article titled “Oops we did it again; the Fed is setting up the masses for another stimulus program” and in a follow-up article titled when will the Fed raise interest rates.

Interest rates were raised and it proved to be a non-event just as we predicted it would be.  They raised rates to make the masses think they that actually believe the crap they are dishing out about an improving economy.

For crying out loud, more Americans drink coffee than have money invested in the market. It is estimated that on average Americans spend $1200 on coffee. If that money were invested in the stock market in 2009, it would have grown to $3600.

Our latest sentiment poll shows that over 73% of investors fall into the neutral and bearish camps. A market never tops out when the masses are not bullish.

Copper no longer predicts Stock Market Direction

Therefore, while there are many fundamental factors stating that the markets are destined to crash, the only thing that will crash is the egos of those making these stupendous claims.  The markets are not going to crash, and they are destined to trend a lot higher. Our mantra to our subscribers in 2015 was to view every pullback as a buying opportunity as the trend (per our proprietary trend indicator) is up and until turns negative the market will not crash.

The ride up is going to be volatile as our V indicator has just surged to new highs; this indicator measures market volatility. The latest reading stands at a whopping 3820; the extreme range stands at 2700, so this indicator is now trading over 1120 points above the extreme range. We have raised the extreme ranges several times over the years, but this indicator keeps soaring to new highs.  While the markets are expected to trend upwards into 2016, many sectors will get decimated, so you need to know which sectors and what stocks to focus on for the next leg up.

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