In simple terms, the value of the C Fund will fall, not rise. The Las Vegas Investment Club will be protected with its 100% position in the G Fund.
I will continue to monitor the situation.
********
Below is a real time exchange with a local investor concerned about the market's future. I have not used her real name in order to preserve her confidentiality and privacy:
RE: Thinking About the Stock Market on Saturday NightSunday, October 24, 2010 2:24 PM
From: "Shelby"
Sorry for the delay in getting back to you, but I wanted to talk to my neighbor and get his ideas about determining when a plunge will occur in advance. He checked the charts and believes the market will drop 5-6 points by the end of this week. He saw that the Dow Jones charts tried 7 times to penetrate the resistance, but didn’t. This sideways movement of various stocks and the Dow Jones, in addition to a small divergence that he’s noticing, has led him to believe the market will go down this week.
I agree with you on your economic assessment. The commercial real estate market is also wreaking havoc, as banks are grappling with the commercial investors now even more than the residential homeowners.
I read ‘The Big Short’ and really enjoyed learning about the derivatives market. The two books I have tried to get through and were recommended by my knowledgeable neighbor are: Technical Analysis of the Financial Markets by John J. Murphy and Japanese Candlestick Charting Techniques by Steve Nison. Have you heard about them? Thanks for all the advice. You’re obviously very knowledgeable and do well in the market. Is this what you do full-time?
Let me pass along something one of my law school buddies told me last week. He said we ignore demographic trends at our peril. With the baby boomers retiring over the next decade, pension plans will begin to sell off assets big-time. As they sell these stocks, the over-all price will plunge. He suggests being extremely cautious and watching volume, as we may be in for a ride. Makes me want to cash out all my 401K’s now. Any thoughts on this?
"Shelby"
From: Winkfield Twyman [mailto:winkfieldtwyman@yahoo.com]
Sent: Saturday, October 16, 2010 11:13 PM
To: "Shelby"
Subject: RE: Thinking About the Stock Market on Saturday Night
Hi "Shelby":
I'm not using any special programs, just experience and observation. I have a core library of about 25 books on trading and investing that I read over and over again.
I'm not looking at any particularly stocks, although ARMH seems attractive right now. Talk about a strong up trend! I'm thinking about SPY for an option play. If the S&P tops out in this area, then the drop could be quick and profitable. It's best to buy puts on an up day but that's hard to do from an emotional standpoint. And every market drop is different. Compare the January 19/February 5 drop with the April 26/May 6 drop, and the June 21/July 1 drop. They are all different in character. So, its a real test of one's mettle to play a drop. You never know what you're gonna get. (I recommend Elder's great book, Come Into My Trading Room, pages 196-97, for a good discussion on options as a major reversal tactic.)
Do you have any ideas on anticipating the character of a plunge 1-7 days before hand? I've tried and tried and it just seems totally luck of the draw. Maybe, it's just impossible to forecast the way in which a market decline unfolds. (When I say "character of the plunge," I mean whether the plunge is straight down in 1-3 days or falls down in a stair case five-wave pattern.) My best guess is the alternation principle (the market never repeats the same pattern twice in a row) which means the next decline should resemble the April fall more than the June fall.
I do think the volatility will increase until the economy improves. There's a guy named Martin Armstrong who argues that the volatility will just increase and increase because of structural imbalances in the system (federal deficit, the Fed printing money, massive derivatives, insolvent financial institutions, etc.)
I think the economic recession (depression?) will last until 2022. It will take a decade to wring the excesses out of the system. The economy has seasons just like the weather. There is a Winter time of debts, foreclosures, and tremendous opportunities in silver and gold. We are in the economic Winter time right now. There is Spring time when you must buy all depressed properties at crazy cheap prices and prepare for the next Great Bull Market. I don't think that time will come until 2022 for cyclical reasons. (See The Right Stock at the Right Time by Larry Williams.) Then there is the Summer and Fall time. The general theory is known as the Kondratieff Wave.
You can make money in the stock market during this economic winter but you will have to be an active investor and follow some simple rules (positive divergence, buy the second dip, sell overbought conditions in a down trend, etc.) Cycles work very well too but you have to have patience and discipline. Try buying every 40-week cycle. More often than not, those dips are good buying opportunities.
Good luck with your investing and trading! I suspect you have read many of the same books that I have. My favorites are How I Made $2,000,000 in the Stock Market, The Right Stock at the Right Time (Kudos to Larry Williams!), Come Into My Trading Room, The Greatest Trade Ever, and The Big Short.
Knowledge is power.
Good trades,
Wink
--- On Sat, 10/16/10, "Shelby"
From: "Shelby"
Subject: RE: The Thrift Savings (TSP) Investment Club : Opportunity is a Powerful Force
To: "'Winkfield Twyman'"
Date: Saturday, October 16, 2010, 6:47 PM
Hi Wink:
Thanks for the analysis on the resistance levels. I’ll watch as the S&P approaches the high 1100’s. I’ll bet you’re right. From everything I’ve read, people watch some form of the moving average (whether it’s 100 day or 200 day) and then watch for the double peak. Are you using any special programs? Are you looking at any particular stocks? I’ve been watching Ford, MGM, UNG and some Brazilian companies. Made a bit of money on these last year, but have been pretty nervous about the volatility over the last 6 months, so I’ve been sitting on the side-lines.
Do you see the volatility continuing until the economy improves? What’s your sense as to how much longer this recession will last? (I realize the government statisticians say the recession ended last year, but I have to wonder. The commercial real estate market is supposed to be pretty awful, so that should have some impact on how quickly the economy will improve.) I appreciate your thoughts.
"Shelby"
From: Winkfield Twyman [mailto:winkfieldtwyman@yahoo.com]
Sent: Saturday, October 16, 2010 2:33 PM
To: "Shelby"
Subject: RE: The Thrift Savings (TSP) Investment Club : Opportunity is a Powerful Force
Hey "Shelby":
Here's my short-term thinking for what its worth---
1. Moving averages provide resistance. They tend to stop the advance of the market in its tracks. The 200-day moving average is at 1196. I would expect that the advance of the market would be halted at 1196.
2. I don't know why but I have found that resistance levels on a Gann chart provide a reliable gauge of resistance. I speak from experience. I have used Gann levels to make money in the past (long story). Anyway, the next significant Gann resistance level is at 1196. I would expect the march of the market to cease at 1196. The market could always do the unexpected and move higher but, for me, that would be an unexpected occurrence.
3. The third time is the charm in the market. As I type, the high for the year on the S&P 500 Index is 1219. That was also the 200-day moving average at the time. The market stopped at that level and dropped into the Flash Crash of May 6, 2010. The market is now challenging the 200-day moving average for the second time. From what I have seen, the second challenge fails. Its the third challenge that succeeds. So, once again, I would expect a second challenge to the 200-day moving average to fail. I could be wrong and that would be fine. No one is right all the time. But my expectations are that a second challenge fails.
I know this is way more detail than you wanted but I was inspired on a Saturday afternoon (smile). All the best and watch how the Standard & Poor's reacts when it touches the 1196 area.
Later,
Wink
--- On Fri, 10/15/10, "Shelby"
From: "Shelby"
Subject: RE: The Thrift Savings (TSP) Investment Club : Opportunity is a Powerful Force
To: "'Wink'"
Date: Friday, October 15, 2010, 8:52 AM
Hi Wink:
Hope to see you at an event soon. I’d really like to hear about your thoughts on Bishop’s. I didn’t realize you were an investor. I’m an amateur (emphasis on the amateur), and also have been trying to determine the next divergence in the market. My neighbor helps me from time to time with the technical analysis, and I’ve found a program that’s pretty good to help with the decisions. I need a lot more time, though, to do it right.
"Shelby"
From: Wink [mailto:winkfieldtwyman@yahoo.com]
Sent: Thursday, October 14, 2010 7:23 PM
To: e-mail address deleted
Subject: The Thrift Savings (TSP) Investment Club : Opportunity is a Powerful Force
Wink has sent you a link to a blog:
"Shelby", I'm looking forward to the next Harvard Club event, particularly if its kid friendly. I have a teenager at Bishop's. Maybe, he might catch the Harvard fever/smile. I'm providing a link to my blog on the market and investing. Wink
Blog: The Thrift Savings (TSP) Investment Club
Post: Opportunity is a Powerful Force
Link: http://thelasvegastspinvestmentclub.blogspot.com/2010/10/opportunity-is-powerful-force.html
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