Say oh wise man how you have come to such knowledge?
Because I was never ashamed to confess my ignorance and ask others.|
Johann Gottfried Von Herder 1744-1803, German Critic and Poet
Don’t fixate on the Stocks to buy today; Identify the trend first
Before attempting to purchase any stocks, one needs to make sure on is on the right side of the markets. If the trend is positive, you can focus on the stocks to buy today issue but if not then the stocks to buy today factor is moot. You should be moving into cash or if you are an aggressive trader, you could attempt to short the markets. You should find out what the masses are doing as they are notorious for coming to the party late and then overstaying their welcome. Therefore if the masses have just turned bullish, you can still compile a list of stocks to buy as the market is highly unlikely to correct until the crowd turns euphoric.
Focus on companies that have an exciting product and that are growing strongly on a quarterly basis. For example, try to focus on companies that have a quarterly earnings growth rate of 25% or higher. You can use a stock screener to speed up the work. One good place to start is finviz.com. Also, don’t pay attention to the experts for they are as lost as the crowd. If they knew what they were doing, they would talk less and invest more; instead, they talk more and invest less and usually sell information that is on par with rubbish for a fortune.
Let’s look at the Gold sector for example
Applying the simple concept of pricing the Dow in Gold and Silver in the same way we did in an article titled Dow 1200 Illusion or, we will show you common sense can go a long way to ensure you are on the right side of the markets.
We will take the low of the Dow over a four year period and the low that gold put during the same period. As the Dow is priced in Dollars, we will divide the price of gold into the Dow. For the record, we could choose other price points as they only serve to illustrate our point.
In Oct 2002 the Dow was trading at 7200 (4-year chart), and Gold was trading roughly around 300.
If we divide 7200 by 300 (the price of Gold), we get 24 ounces. Now it took 24 ounces of Gold to buy the Dow back in Oct 2002 (remember we took the Dow’s lows into consideration and not it’s highs) so it should take at least 24 ounces or more to buy the Dow in 2006. Let’s check that figure out. In May 2006, the Dow put in a new 52 week high and almost tested its old all-time high of roughly 11700. For argument’s sake, we will assume that the Dow traded to 11700 in May. At that time Gold put in a high of roughly 720.
11700 divide by 720 = 16.25
Back in 0ct 2002, it took 24 ounces to buy the Dow and at this time it was trading at a four-year low. This means that the Dow was trading higher back in Oct 2002 then it was in May 2006, because in May it took 8 ounces less of Gold to buy the Dow when it’s trading at close to a new five years high. For the Dow just to break even to its Oct 2002 levels it would have to be at (24 X 720) 17280.
The Dow only made it to 11700 and that means the Dow corrected over 35% as it should be at 17280 instead it’s below 11700. Market technicians state that we are in a bear market if the market has corrected over 20%. Based on these figures the Dow corrected over 35%, albeit silently, yet the Dow has just put in a series of new illusory 52 week highs. In reality, the market could trade a lot higher and still be in a (Silent) bear market. The funny part is that the bears are right, but they just don’t know how to use this info, and the bulls are wrong, but at least, for the time being, they are using the information at hand correctly.
Long term this Market is destined to soar to new highs for two reasons. The market has already experienced a strong correction. Secondly, the function of the Fed is to ensure that markets continue to trend higher. Why? They are going to continue inflating the money supply to infinity and that entails maintaining a healthy financial system. Or at least it should appear to look healthy. One day the masses will wake up but we would not hold our breath as that day could very far into the future. The masses, for now, love “fiat” and nothing is going to change that over the next 10-20 years.
If we use Silver as the constant, the figure we get is even more outrageous, and it suggests that the markets have corrected even more than 35%.
Silver was trading around the 5.15 mark in Oct 2002.
Dow 7200 divided by 5.15 = 1398 ounces
May 06 Silver traded roughly to 15 dollars
1398 X 15= 20970; that’s the level the Dow should be just to equal the level it was trading in Oct 2002 when priced in silver.
This means that the Dow has already corrected a whopping 44.2%, and yet it has put in a series of new 52 week highs. These highs are all illusory in nature and it indicates that in the long run, the Dow will be trading much higher than it’s trading today as it has already experienced a back-breaking albeit silent correction.
Since the Dow is priced in dollars lets, perform a final test on the Dow. The Dow hit an all-time high back in 2000 (look at the picture below). To simplify matters, let’s assume the value of this high was 11700 (actually it’s higher).
Now let’s look at what the dollar was doing in the same period. At the time the Dow put in it’s all-time high the dollar index was trading around 105; this is roughly 20 points (currently in the 85 ranges) lower than where it’s trading right now. On a % basis, it works out to 19.5%. To make things simple, we will round it off to 20. In today’s dollars, the Dow would have to trade 20% higher than the high it put back in 2000 just to break even. At this point, the chances of the Dow trading to the 14040 price point level are slim to none. If we were wildly optimistic we would probably issue a target of 12600 at the most.
Stocks To Buy Today or Tomorrow Is A Silly Concept
One could technically state that the market is only experiencing a long-dead cat’s bounce or that we are in a long-term bear that is truly invisible for the time being. In the end, one must understand that when one is dealing with the markets that nothing remains the same forever; those who examine the markets with closed eyes and a closed mindset will find that their wallets enter into the empty rather rapidly. This little exercise also very clearly illustrates the evils of inflation.
Buy when the masses panic and sell when they are euphoric; that’s mass psychology 101 for you and do not focus on the stupid concept of stocks to buy today as there is a time to buy and a time to sell. There is also a time to do nothing. Focus on the trend for it’s your friend.
Charts were provided courtesy of prophet finance
Since we can’t know what knowledge will be most needed in the future, it is senseless to try to teach it in advance. Instead, we should try to turn out people who love learning so much and learn so well that they will be able to learn whatever needs to be learned. John Holt 1908-1967, Australian Politician, Prime Minister