Fibonacci Financial

Archive for the ‘Financial War Room’ Category

I Just Received A Short Term Sell Signal From My COT Guru !!!

Therefore, my skepticism about a Silver (SLV) breakout to the upside and inflation will probably prove correct.  If Silver breaks out to the down side, we may still see an opportunity to accumulate Silver at bargain basement prices.  It may also mean that we may be getting close (most likely a few months) to the next deflationary down leg.  The main event still to come before then next Deflation Tsunami will be the end of the stock market rally which still has legs (in spite of a near term pullback or consolidation).

Stay tuned

PS: Yes I love Silver and believe at some point in the next 10 Years it will sell at least 10 times its current price.  BUT I still haven’t accumulated all I want.  Therefore, I love to see Silver GO DOWN IN PRICE !

Worst case scenario for Silver is that it doesn’t bottom out till 2012.  To me that just means 2 more years to buy it at great prices. 

While we have had  the break out of the Gold Silver ratio and of various Commodity indexes in infationary directions, we still have not seen a break out of silver.  Here is an updated point and figure chart of SLV the silver ETF.

The information regarding Commercial (insiders) and Speculator positions published in the Commitment of Trader (COT) reports on Friday still support the contention that this is a bear market rally in the precious metals also.

What Are All Those XXXX’s and OOOO’s on the Charts?

( No Dear Reader They Don’t Represent Hugs n Kisses! )

Several readers have indicated that they are not familiar with the point and figure charts that I use for illustration purposes in the blog.  John Murphy (world class technical analyst) provides an excellent overview of Point and Figure charting on his web site StockCharts.com.  If anyone is interested in why I use these “old fashioned” P and F charts drop a comment requesting additional information.

Do not get the idea that you can trade or make investment decisions from my blog entries.  These are an introduction to my services and do not constitute investment advice.

When Markets Correct Primary Trend Moves They Can Be Very Complex and Confusing.

What Should I Do With My Stocks and 401K Now ?

Where are we right now in the US Stock Market ?

What should our investment attitude be?

Point 1. The US Stock Markets entered a primary bear market in late 2007.

Point 2. In terms of Price Earnings Ratios, Dividends, Q-Ratios and other measures of value, the US Stock Markets were historically overvalued in 2001 and 2007.  This Bear Market decline will most likely not end until the US Stock Market is at historic lows in these measures of valuation.  The US Stock Markets will have to fall a lot more before that happens.

Therefore our current presumption is that the Bear Market is NOT over!

The current wave of talking head commentary regarding the beginnings of a new bull market are very likely wrong and will suck a lot of unwary investors back into the markets before this rally is over.

Its just a fact of life, Market corrections are usually very messy and unpredictable.  This rally in a Bear Market will be both frustrating and confusing.  Here are a couple of possible scenarios:

Scenario 1.  Consolidation.  The stock market will Consolidate (messy sideways action) here and then run up to a bear market rally top.  Action, sit tight and sell any remaining stocks at the end of the rally. Then….

SELL, SELL, SELL ! at the Top of The Rally

Scenario 2. Deep correction There will be a dramatic drop in stocks that scares the Heck out of everyone and makes it appear as though the rally is over BUT the stock market doesn’t break down to new lows.  Then the market frustrates the bears and rallies up to between 9,000 and 10,000 on the Dow Jones Industrial Average.  Then….

SELL, SELL, SELL ! at the Top of the Rally

Scenario 3.  WE ARE WRONG and the markets break down with one of the Dow Indexes breaking to a new low BUT the other Dow Index doesn’t confirm thereby setting the market up for a Dow Theory Buy Signal when both indexes then better their May highs.  IF this low probability event takes place, I will BUY, BUY, BUY

If any of this is confusing PLEASE drop me a comment and I will provide additional explanations and resources.

What Are All Those XXXX’s and OOOO’s on the Charts?

Several readers have indicated that they are not familiar with the point and figure charts that I use for illustration purposes in the blog.  John Murphy (world class technical analyst) provides an excellent overview of Point and Figure charting on his web site StockCharts.com.  If anyone is interested in why I use these “old fashioned” P and F charts drop a comment requesting additional information.

The next leg down in this Bear Market (after this rally is over) could be absolutely devastating. So, IF you still have a substantial portion of you investments in Stock, you must be ready to liquidate those positions at the end of this rally.  If this is the case please contact me so I can provide timely advice and guidance.

Do not get the idea that you can trade or make investment decisions from my blog entries.  These are an introduction to my services and do not constitute investment advice.

Flash – The Gold Silver ratio Broke Down ! The Scales Tip Towards the Inflation Camp.

Vide !

Given this Breach in the Gold Silver ratio, I will be looking closely at the COT (Commitment Of Traders) report this weekend and next (unfortunately the info is for trading only through tuesday).

Frankly dear reader I am skeptical.  Let’s look at the Silver ETF SLV action.

A price Break Out in SLV that prints an X at $14.50 would force this ole poker player to exchange some of his greenbacks for silver bars.  One of Jesse Livermore’s rules was never be afraid to buy strength.  Not every poker hand is a winner but you learn to play every hand unemotionally.  Remember its not about the hand its about the game.  That is where good money management (proper asset allocation, stops, Optimal F, etc…) comes into play.  If you don’t have good money management rules – before the game ends YOU WILL LOSE.  If you make money along the way without employing good money management, you were lucky and luck runs out.

As Paul Harvey always says – Stay Tuned For News.

The Inflation vs Deflation debate rages all over the Web – So who is right ?

Last years deflationary collapse was revealed by a break out of a 2 year consolidation of the Gold/Silver ratio.  After burning itself out temporarily and yielding to the current mini bail out bubble the Gold/Silver ratio has once again entered a consolidation formation.  The breakout should indicate which tide will overwhelm the markets over the next 9 to 18 months.  My guess is that you will not find this insight anywhere else on the web.

Vide !

How does this work?  Silver was demonetized a century or so ago and now a large part of its demand comes from the industrial/jewelry sector (although the monetary demand is growing again).  Therefore it is more sensitive to a deflationary collapse.  Although the central banks and governments of the world have worked tirelessly to demonetize gold, it still is part of the monetary base of most central banks.  In spite of blatant manipulation by central banks and governments it still is less sensitive to deflation.  If the Bernanke/Obama bail out/stimulus printing presses overwhelm the collapse of toxic debt and we head into another inflationary/hyper-inflationary period, gold and silver will both break out to new highs but silver will run faster.  As the price of silver outpaces gold on a relative basis, the Gold/Silver ratio will decline.

Why should you care dear reader?

The next tide of either Inflation or Deflation will have a massive impact on your investments and wealth.  Knowing which one will dominate should dramatically alter the composition of your investments and impact your financial decisions.

The Gold/Silver ratio is one of the key indicators that I watch.

We don’t have to guess or predict the outcome of the Deflation / Inflation tug-of-war.  We just have to be alert to what the markets are telling us and reallocate our portfolios accordingly.

You saw it here first.  So, Stay Tuned ! ! !

Fibonacci Financial Portfolio Prism vs  Life-Cycle Investing

Life-Cycle Investing is a primary model for asset allocation in most financial planning performed in the U.S.A.  It is aptly described in a Social Security Policy Brief titled “Portfolio Theory, Life-Cycle Investing and Retirement Income”. The Policy Brief says “The life-cycle funds described here create portfolios that are heavily concentrated in stocks at the beginning of the work life and gradually shift holdings to bonds as retirement nears“.

The following table from the SS Policy Brief demonstrates this shift away from stocks as one ages:

This rigid/mechanical model relieves the Financial Planner of the burden of making market allocation decisions other than the fine tuning of these bench marks based on the clients special needs, goals, experience and expectations.  This model implies that intelligent decisions about asset allocation based on the markets is impossible.  Most Americans have bought into the Life-Cycle Investment  model as demonstrated by the next table which also comes from the same  SS Policy Brief.  Are you caught in the Life-Cycle Investment trap?  A first hint would be that your 401K is down 40-60%.

This table illustrates actual investor preferences as revealed in a study performed by Bodie and Crane (1997).

Remember – 90% of Portfolio Returns come from Asset Allocation decisions !

Therefore, if we get our allocations wrong it has tremendous impact on our wealth and retirement options.  Each quadrant (Cash, Lending, Investing, Tangibles/Intangibles) has its own seasons, cycles and dynamics.  Yes sometimes these cycles are correlated but sometimes they are not.

I will not explore the fallacies behind the stock portion of this model until a latter article.  But one chart will provide sufficient information to bring the “Bond” (aka Lending quadrant in FF Model) portion of the Life-Cycle Investment model into serious question. Vide !

Click to Enlarge

The above chart of 10 Year Treasury Bonds shows that there have historically been long periods of rising interest rates and long periods of declining interest rates.  Why should we care?  When interest rates rise the value of Bonds fall – ergo – you loose money!  When interest rates decline Bonds values go up!  As shown in the chart, interest rates have been declining for more than 25 years and as one would expect this was a period of rising bond values.  BUT interest rates are very low now.  Given past history, we are likely to see a 25 to 30 year period of rising interest rates begin in the near future – ergo – 30 years of losing money in bonds (except for a very few speculators).  These rising interest rates will devastate bond portfolios!  So, does it make sense to move older clients into this rising interest rate Bond Bear market trap? NO!, NO!, NO!

The Dynamic Fibonacci Financial “Portfolio Prism” Debut!

Without going into a complete explanation of the Fibonacci Financial portfolio development process, let me introduce the Portfolio Prism a dynamic approach to asset allocation.

The first step in the FF Portfolio decision process is to maintain an Asset Allocation Map of the market.  The result of our current assessment of the markets is displayed on the M.D.D. (Market Decision Dashboard).  The current recommended position in Bonds can be found in the “Lending Quadrant”.  Currently long term bonds are not under accumulation but are rather being liquidated in anticipation of a potential 30 year bear market in bonds.  But for illustration purposes, let pretend that Bonds are anticipated to be entering a 25 year bull market and will be under accumulation.  The next step in the FF Portfolio decision process would be to gather information about a client and to develop a client profile.  The final step would be to develop a portfolio based on the market profile and the client profile.  If bonds are deemed appropriate, regardless of the client’s life-cycle position, either conservative or more aggressive bond investment vehicles would be chosen.

The M.D.D. ( Market Decision Dashboard) in full display looks like:

(Caution the following view of the M.D.D. is for demo purposes only)

As a reminder, the underlined items in each quadrant will indicate that additional history, fundamental, technical and investing information is available when you click on the item and drill down.

So dear reader, should the aging Baby Boomers mechanically shift their decimated stock portfolios into bonds as recommended by a dominant portion of the financial planning community based on the static Life-Cycle Investment model ?

What do YOU think?  Please comment.

Feedback on the new Portfolio Prism would be greatly appreciated.

Beware

The current Bail Out Bubble Rally will probably end in the Jaws of the BEAR !

So Dear Readers, Stay alert when the Dow breaches the 9000 level.

Where Are We In The Markets and What Should We Do?

Current FF Market Model Allocation?

Category 1 – Cash

Gold and Silver are most likely in a long term up trend that started in 2001.  They peaked in 2008 and are currently working their way down and up and down to the first buying opportunity in several years.  Remember nothing goes staight up or down.  Gold should be buy below $700 and silver should be a buy below $7 (very rough guidance).  The pot at the end of this rainbow is a few months away.

PS: This is supported by Long Term precious metal cycles, Long Term trend lines going back to 2001.  The only caveat is the concern as to how they will be affected by the next killer deflationary wave.  This will be monitored as they come back down to their long term trend lines.  Also there is a chance that I will be wrong about deflation coming next.  If inflation is next the price action in the precious metals will show their hand and we will make the appropriate investment response and buy into strength ala Jesse Livermore.

Cash is KING again.  Long live the King.  The U.S. Dollar was in a bear market for several years up till September of 2008.  It is now in a multi-year bull market.  Yes Washington DC and the Fed are doing everything in their power to devalue it BUT the following factors trump their printing press profligacy in the short term anyway.  First and foremost the massive debt accumulation over the last few years is serving as a massive short squeeze against the dollar.  This now turns into a panic for dollars.  Also, in a fractional reserve fiat money system as debt collapses, a reverse leverage works and money supply in the broad sense implodes far faster than the boyz at the fed and treasury can print it.  Add to that the dollar got way over devalued against other fiat (rag money) currencies such as the euro.

PS: This is supported by Commitment of Trader COT activity, Cycle Studies, Elliot Wave action and Point and Figure chart action.

Yes then there is the Euro.  It was in a bull market for several years and got so overvalued that even famous runway models became financial geniuses.  Now it is just Euro trash for a couple of years – if it survives.  Currency unions are notoriously short lived.  Yes I can hear all of you One World conspiracy theorists howling at the moon!  FYI I have read Tragedy and Hope by Caroll Quigley (heavily annotated)and much more.  Please read The Great Wave by David Hacket Fischer for starters and then lets chat.  If the Great Wave does not get the One Worlders the Singularity will!

Category 2 – Lending (Debt Instruments)

To be continued tomorrow.   Yes dear reader for next few days I will cover a category a day.

Since we are midstream in so many markets, it seemed like a good time to start filling out the FF Market Map.

Stay tuned for more.   And remember most of the time it is best to be patient and let the market provide its bounties in its own time.  Get in a rush and you loose….

As always, if you have questions about Category 1 Cash – please drop me a comment and I will address it manana!

The Commitment of Traders COT reports from last week show that the commercial traders (the insiders) have been buying gold and silver.  The speculators have still spent most of their available funds so this will not generate a new bull market.  Short term the precious metals are not likely to break down as I had anticipated but will possibly drift higher.  But stay tuned, gold and silver will still be available at much lower prices as soon as the Mini Bailout Bubble exhausts itself. Patience dear reader.  The opportunity is probably 3-9 months down the road.

Your ever vigilant analyst.

PS: If you were watching Silver after I posted the point and figure chart, you noticed it didn’t break down and confirm gold’s break down.  That kind of a non confirmation was an early signal that something had changed.

Stay tuned for more!

This is My Evolving  – Market Decision Dashboard©

(it is at the graphic artists and won’t be ready for a week)

The complete version is a Cube with Risk Levels across the top and Client Profile down the right hand side.  You will be able to click on each underlined item and drill down to specific information.

Click to enlarge

This is a Map of the Markets laid into Quadrants for Asset Allocation purposes.

Please Post Comments – Is it self explanatory OR is it confusing OR do you have questions ???