The Great Depression Online




Great Depression Online Archive Issue:

Why You Should Sell Your Stocks

Great Depression Online
Long Beach, CA
July 23, 2010

Inside This Issue You Will Discover…

*** Technical Babble
*** DOW 7,500
*** Why You Should Sell Your Stocks
*** And More

Technical Babble

Here at the GDO we’re not one for technical stock market analysis.  We peruse the S&P500 200-day moving average from time to time, but mention technical indicators like Moving Average Convergence-Divergence (MACD), Bollinger Bands, or Stochastic Oscillators to us and our brain locks up like an old 286 processor with a dialup modem.

We’re after perspective around here.  Not just the view from the 10,000-foot level vantage point; from there we can hardly tell what we are looking out.  Instead we prefer the view from the 100,000 foot level…where little zigs and zags disappear into the larger context of broad bull and bear market cycles.

For example, when looking back at the DOW over the last 100-years we see patterns.  Some may even call them wave patterns.  Stocks zigzag up for about 15 to 20 years, then they contort with sharp movements…drifting along sideways for about 15 to 20 years.  After that the next big bull market commences for another 15 to 20 years.

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Occasionally, despite our resistance to technical babble, we come across some shrewd analysis worth considering.  Sometimes, even among talk of head and shoulders formations and pattern projection targets, there’s just the perspective we’re after.

Like this…

DOW 7,500

“The crash of the Dow Jones Industrials in 1929 was signaled by the development of a well defined head and shoulder pattern, seen most clearly in its monthly chart, says Daryl Guppy for CNBC.  “It is a reliable pattern that captures the behavior of investors who are becoming increasingly disillusioned about the future prospects for economic growth.

“The downside pattern targets in the 1929 Dow were exceeded with a fall of around 49% before the market recovered in 1930.  The 2008 dow pattern targets were also exceeded with a market fall of around 52%.

“In 1930, the market developed an inverted head and shoulder rebound pattern recovery that led to a 46% rise in the market. The Dow rebound in 2009 also developed from an inverted head and shoulder pattern.  This was a powerful rise of around 69%.

“The historical development of the recovery in the DOW in 1930 ended with a new head and shoulder pattern.  This was followed by a rapid market decline that created the first part of a long term double dip pattern.  This retreat also exceeded the pattern projection targets with a fall of 28%.

“Fast forward to today, we’re seeing the Dow is developing a new head and shoulder pattern which indicates a beginning of a bear market.  The rally peaks in the Dow appear in January and May and June.  The downside projection taken from the neckline of the pattern sets a target at 8,400, or a 25% decline.

“A very bearish analysis using the pattern of retreat behavior in 1930 suggests the Dow could retreat to around 7,500 in 2010.”

What to make of it?

Why You Should Sell Your Stocks

It seems so obvious, evident, and elementary.  Like blowing off the IRS or giving a Hells Angels Biker the middle finger, if you buy stocks in the summer of 2010, you’re not only asking for trouble…you’re inviting it too.

Sure, there are times when you should buy stocks.  But ‘through no fault of your own,’ this is not one of those times.

Here at the GDO we come to the same conclusions as Guppy…yet we use different means and methods to get there…

To the contrary of Guppy’s means and methods, ours are quite rudimentary.  In fact, they are two fold.  First, we lick our index finder and hold it up to the economic winds to see which way they are blowing.  Second, we run a simple gut check.  After that, the answers are quite clear.

Here’s how we go about it…starting with a sampling of the economic winds…

On Wednesday, as reported by AP the Senate approved jobless payments to millions whose benefits have lapsed.  Then, yesterday, the House passed it and President Obama signed it into law.

“Unemployment benefits protect those who have lost their jobs through no fault of their own but would lead to more jobs, higher wages and a stronger economy for all Americans,” said Speaker Nancy Pelosi.

Huh?  Did we miss something?  Remember, these unemployment checks – through no fault of your own – are paid with debt.  This means, they subtract future growth from the economy.  In other words, through no fault of your own, they help extend the depression further into the future.

On Wednesday, President Obama, through no fault of his own, signed the Dodd-Frank Wall Street Reform and Consumer Protection financial reform bill.  We don’t know much about it…except that it’s 2,300 pages.  But that’s all we need to know; a law that long can’t do much good.

Now, for the gut check…

“It looks like our economy is in need of additional help,” said Senator Chris Dodd.

This statement can only mean one thing…

Sell!

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  While we may not be much for technical analysis, our friends over at Elliott Wave International are.  In fact, they’re pretty darn good at it.  See for yourself.  They’ve just announced the beginning of their wildly popular FreeWeek event, where they throw open the doors for you to test-drive some of their most popular premium services.  From now through noon Eastern time Wednesday, July 28 you can access EWI’s Energy Specialty Service – valued at $347/month – for free.

Find out where Crude Oil and Natural Gas prices are going.

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