Expectations are Still Low

The Expectations Indicator is still pointing to a low expectation environment keeping a bullish bias opinion.

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The Dow Jones Industrial Average and its interaction with the 200 day moving average circled.

Although the market has shown a recent large down points day on the Dow Jones Industrial Average, the percentage down was rather unimpressive supporting the bullish bias opinion. If history does repeats itself the 200 day moving average on the Dow Jones Industrial Average could mark a potential reversal point.

The market unfortunately appears to be populated with more traders then investors, so one should tread carefully.

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The Marketexpectation.com is not registered as a securities broker-dealer or investment adviser with any jurisdiction and is not providing any personalized financial, investment or tax advice. Marketexpectation.com cannot assess or guarantee the suitability of any particular investment to any personal situation. Accordingly, you bear complete responsibility for your own investment, financial, and tax research and decisions and should seek the advice of a qualified professional prior to making any decisions based on the Subscription. The Subscription is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. All opinions expressed and information and data provided therein are subject to change without notice. We do not undertake any duty or obligation to update any content of the Subscription to reflect current market conditions or other changes.

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Another 200 Day Moving Average Bounce

Market Expectations remain low keeping the bias to the upside. Just as we saw back in February the market found support at or around the 200 day moving average.

The 200 day moving average continues to be the line in the sand because Wall Street deems it. The recent selling is Wall Street building a step in hopes of pushing the markets higher in the future.

The above and below represents the opinion of the author and do not constitute a recommendation to buy or sell any financial products.

IF THERE IS ANY CHANGE IN EXPECTATIONS OR THE ABOVE VIEW OR TIME SENSITIVE OPPORTUNITIES, MARKET ALERT SUBSCRIBERS WILL BE NOTIFIED IMMEDIATELY VIA EMAIL.

Disclaimer: DISCLAIMERS OF WARRANTIES AND LIMITATIONS ON LIABILITY. YOU AGREE THAT YOUR USE OF THE SUBSCRIPTION AND THE CONTENT AVAILABLE THROUGH THE SUBSCRIPTION IS ON AN “AS-IS”, “AS AVAILABLE” BASIS AND WE AND OUR INFORMATION PROVIDERS SPECIFICALLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In addition, Marketexpectation.com and its Information Providers make no representations or warranties of any kind in connection with the subject matter included on or the use of the Site, and use of the Site is subject to the disclaimers, terms and conditions of use found at the Site.

The Marketexpectation.com is not registered as a securities broker-dealer or investment adviser with any jurisdiction and is not providing any personalized financial, investment or tax advice. Marketexpectation.com cannot assess or guarantee the suitability of any particular investment to any personal situation. Accordingly, you bear complete responsibility for your own investment, financial, and tax research and decisions and should seek the advice of a qualified professional prior to making any decisions based on the Subscription. The Subscription is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. All opinions expressed and information and data provided therein are subject to change without notice. We do not undertake any duty or obligation to update any content of the Subscription to reflect current market conditions or other changes.

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The Line in the Sand – 200 Day Moving Average

market-expectation-logoWith expectations remaining low the stock market environment still retains its bullish bias. The Expectations Indicator has pushed to extreme lows over the past week, validating the markets extreme low expectations.

The stock market over the past month has gone through a rather organized consolidation. Based on the low expectation environment and Wall Streets value of the 200 day moving average, we could assume if the bullish rally is to continue the logical point for the market to make a reversal would be at or around this important value (15,470 on the Dow Jones Industrial Average).

The Market Expectation Letter will no longer be released monthly and only be updated when the Expectations Indicator changes or other potential important pivot points recognized by the author. To learn more about this new prospective on identifying likely changes in stock market direction, read The Art of Expectations by Lou Ebner.

The above and below represents the opinion of the author and do not constitute a recommendation to buy or sell any financial products.

IF THERE IS ANY CHANGE IN EXPECTATIONS OR THE ABOVE VIEW OR TIME SENSITIVE OPPORTUNITIES, MARKET ALERT SUBSCRIBERS WILL BE NOTIFIED IMMEDIATELY VIA EMAIL.

Disclaimer: DISCLAIMERS OF WARRANTIES AND LIMITATIONS ON LIABILITY. YOU AGREE THAT YOUR USE OF THE SUBSCRIPTION AND THE CONTENT AVAILABLE THROUGH THE SUBSCRIPTION IS ON AN “AS-IS”, “AS AVAILABLE” BASIS AND WE AND OUR INFORMATION PROVIDERS SPECIFICALLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In addition, Marketexpectation.com and its Information Providers make no representations or warranties of any kind in connection with the subject matter included on or the use of the Site, and use of the Site is subject to the disclaimers, terms and conditions of use found at the Site.
The Marketexpectation.com is not registered as a securities broker-dealer or investment adviser with any jurisdiction and is not providing any personalized financial, investment or tax advice. Marketexpectation.com cannot assess or guarantee the suitability of any particular investment to any personal situation. Accordingly, you bear complete responsibility for your own investment, financial, and tax research and decisions and should seek the advice of a qualified professional prior to making any decisions based on the Subscription. The Subscription is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. All opinions expressed and information and data provided therein are subject to change without notice. We do not undertake any duty or obligation to update any content of the Subscription to reflect current market conditions or other changes.

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November 2013 – History Always Repeats Itself

market-expectation-logoOne thing as human beings we can all agree upon is that history always repeats itself. As investors we can profit from understanding this fact of life. To profit from it we need to understand at what point in history we are repeating.

Mass media and governments around the world would be lead us to believe that we on the other side of a catastrophic economic implosion like we saw in the 1929. According to the world economic brain trust, economies around the world have seen the worst of it and are on a path of recovery.

History tells us though that economic disaster does not right itself in a matter of a couple of years, for example the Dow Jones Industrial Average did not reach the levels it saw in 1929 before the crash until 1954 a full 25 years later. Economic impact leaves its mark on main street for a generation as most of us grew up hearing stories of the great depression from our grand parents. So then where are we in history?

In my opinion we are in the roaring 1920s and here are a few reasons I believe this:

  • Today, as in the roaring 1920s, main street seems more interested in connecting with other people then making technological advances as seen with social media companies grabbing the lions share of venture capital.
  • Companies are borrowing significant amounts of money to buy their outstanding stock back thereby improving their earnings by reducing their floating shares as occurred in the late 1920s, which ultimately was a primary cause the great crash in 1929. Carl Icahn recently sent a letter to Apple’s CEO suggesting they borrow $150 billion dollars to buy back shares thereby improving their price to earnings ratio and adding stock value .
  • The US government is coordinating its recovery with Europe and other large countries. Today the US Federal reserve is providing an economic back stop to half of the world. During the 1930s it was every country for itself, they had to worry about their own first because how dire it was.
  • In 1920 Charles Ponzi was convicted and sentenced to 5 years for mail fraud as a result of his famous $20 million dollar scheme. In 2009 Bernard Madoff was sentenced to 150 years for his $65 billion dollar Ponzi scheme. Large scale investment frauds like the above mentioned appear in history when trust and risk appetite are high.

The above are just a few of the similarities between today and the roaring 1920s. The question one might ask then is whether we are in the beginning, middle or end of that time in history.

Today expectations remain low, according to the Expectations Indicator, providing the environment for the market to continue higher. Unfortunately I believe we are nearing the end of the roaring 1920s making this time in the markets a very dangerous place to be, so tread lightly and expect volatility.

The above and below represents the opinion of the author and do not constitute a recommendation to buy or sell any financial products.

IF THERE IS ANY CHANGE IN EXPECTATIONS OR THE ABOVE VIEW OR TIME SENSITIVE OPPORTUNITIES, MARKET ALERT SUBSCRIBERS WILL BE NOTIFIED IMMEDIATELY VIA EMAIL.

Disclaimer: DISCLAIMERS OF WARRANTIES AND LIMITATIONS ON LIABILITY. YOU AGREE THAT YOUR USE OF THE SUBSCRIPTION AND THE CONTENT AVAILABLE THROUGH THE SUBSCRIPTION IS ON AN “AS-IS”, “AS AVAILABLE” BASIS AND WE AND OUR INFORMATION PROVIDERS SPECIFICALLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In addition, Marketexpectation.com and its Information Providers make no representations or warranties of any kind in connection with the subject matter included on or the use of the Site, and use of the Site is subject to the disclaimers, terms and conditions of use found at the Site.
The Marketexpectation.com is not registered as a securities broker-dealer or investment adviser with any jurisdiction and is not providing any personalized financial, investment or tax advice. Marketexpectation.com cannot assess or guarantee the suitability of any particular investment to any personal situation. Accordingly, you bear complete responsibility for your own investment, financial, and tax research and decisions and should seek the advice of a qualified professional prior to making any decisions based on the Subscription. The Subscription is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. All opinions expressed and information and data provided therein are subject to change without notice. We do not undertake any duty or obligation to update any content of the Subscription to reflect current market conditions or other changes.

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October 2013 – What Government Shut Down?

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Expectations continue to remain low, which keeps the stock market with an underlying bullish bias.

closed-signOver the past two months the US stock market has been hovering near its all time highs with few attempts at pullbacks only to pop back towards the recently set new highs. This type of market action on a chart clearly shows us consolidation. With any type of market consolidation we should expect it to come to a point and break out into a new trend.

Within hours of the United States Government shutting down, the stock market even in the face of this real fear has only shed fractions. This muted market reaction is common with any Low Expectation environment as bad news is expected while any bit of positive news is applauded.

The government shut down could become the springboard to pushing the market through its recent high. Although a shutdown may occur it is likely some sort of deal will be made and once this happens it the stock market could pop through its recent highs.

As discussed in previous Market Expectation letters; markets have been moving mostly on artificial means making any stock market action extremely volatile. Any participation in these recent and coming stock market moves should be tapered to meet ones risk appetite considering this volatile time in history.

The above and below represents the opinion of the author and do not constitute a recommendation to buy or sell any financial products.

IF THERE IS ANY CHANGE IN EXPECTATIONS OR THE ABOVE VIEW OR TIME SENSITIVE OPPORTUNITIES, MARKET ALERT SUBSCRIBERS WILL BE NOTIFIED IMMEDIATELY VIA EMAIL.

Disclaimer: DISCLAIMERS OF WARRANTIES AND LIMITATIONS ON LIABILITY. YOU AGREE THAT YOUR USE OF THE SUBSCRIPTION AND THE CONTENT AVAILABLE THROUGH THE SUBSCRIPTION IS ON AN “AS-IS”, “AS AVAILABLE” BASIS AND WE AND OUR INFORMATION PROVIDERS SPECIFICALLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In addition, Marketexpectation.com and its Information Providers make no representations or warranties of any kind in connection with the subject matter included on or the use of the Site, and use of the Site is subject to the disclaimers, terms and conditions of use found at the Site.
The Marketexpectation.com is not registered as a securities broker-dealer or investment adviser with any jurisdiction and is not providing any personalized financial, investment or tax advice. Marketexpectation.com cannot assess or guarantee the suitability of any particular investment to any personal situation. Accordingly, you bear complete responsibility for your own investment, financial, and tax research and decisions and should seek the advice of a qualified professional prior to making any decisions based on the Subscription. The Subscription is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. All opinions expressed and information and data provided therein are subject to change without notice. We do not undertake any duty or obligation to update any content of the Subscription to reflect current market conditions or other changes.

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July 2013 – An Unsure Wall Street

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Lost and Confused Signpost

Finally the widely forecasted pullback has ensued with the DJIA (Dow Jones Industrial Average) off more then 900 points (on June 24th) from its high (on May 22nd). Since the Expectations Indicator is still signaling a Low Expectations environment we should expect the market to find support and resume its bullish move higher after this pullback has run its course.

Since the pullback has ensued we have seen weakness around the world in stocks and fixed income, specifically US Treasuries, with the only real winner being the US Dollar. Historically selling in the stock market leads to buying in the treasury market. From this unique market action we can only assume the proceeds from the sales of these securities are being converted in to US Dollars. Whenever Wall Street chooses cash over securities, we can only assume they are unsure what to do. To further illustrate this point, whenever the market has had an up day in this pullback there has been buying in both equities and treasuries showcasing Wall Street’s confusion over where they should be putting their cash to work.

Taking into consideration the unsure moves of Wall Street during this pullback, we can only assume the downturn in the market will be larger then expected. Using time tested support and resistance rules, a likely point of support could be found around the 13,000 (plus or minus 250 points) on the DJIA.

The above and below represents the opinion of the author and do not constitute a recommendation to buy or sell any financial products.

IF THERE IS ANY CHANGE IN EXPECTATIONS OR THE ABOVE VIEW OR TIME SENSITIVE OPPORTUNITIES, MARKET ALERT SUBSCRIBERS WILL BE NOTIFIED IMMEDIATELY VIA EMAIL.

Disclaimer: DISCLAIMERS OF WARRANTIES AND LIMITATIONS ON LIABILITY. YOU AGREE THAT YOUR USE OF THE SUBSCRIPTION AND THE CONTENT AVAILABLE THROUGH THE SUBSCRIPTION IS ON AN “AS-IS”, “AS AVAILABLE” BASIS AND WE AND OUR INFORMATION PROVIDERS SPECIFICALLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In addition, Marketexpectation.com and its Information Providers make no representations or warranties of any kind in connection with the subject matter included on or the use of the Site, and use of the Site is subject to the disclaimers, terms and conditions of use found at the Site.
The Marketexpectation.com is not registered as a securities broker-dealer or investment adviser with any jurisdiction and is not providing any personalized financial, investment or tax advice. Marketexpectation.com cannot assess or guarantee the suitability of any particular investment to any personal situation. Accordingly, you bear complete responsibility for your own investment, financial, and tax research and decisions and should seek the advice of a qualified professional prior to making any decisions based on the Subscription. The Subscription is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. All opinions expressed and information and data provided therein are subject to change without notice. We do not undertake any duty or obligation to update any content of the Subscription to reflect current market conditions or other changes.

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June 2013 – The Expectations Indicator Forecast

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approaching-stormSince June 12th, 2012 expectations continue to remain low according to the Expectations Indicator. With Low Expectations the stock market should remain in a bullish environment. But as discussed in the May 2013 Market Expectation Letter, the recent move higher appears to be forming a bubble top and the Expectations indicator triggered a likely pullback. The message remains the same in this letter while adding what we could expect in the future applying the Expectations Indicator’s objective approach.

When a market forms a bubble it is typically created despite fundamental rational and goes contrary to logic. Since this bubble has been created in a low expectation environment, we can only assume that a pullback should be met with buying support. Once the pullback does ensue in the stock market the buyers that recover it and provide support will be looking for future real earnings to begin to justify that previous high. Future earnings must justify any previous move in the stock market.

For the stock market’s earnings to be justified the process must begin with earnings expectations being raised. Since a bubble is created while defying all logic, then future expectations must be raised to match this unrealistic outlook which creates a high expectations environment hence setting the stage for a large sell off in the equities markets.

The above and below represents the opinion of the author and do not constitute a recommendation to buy or sell any financial products.

IF THERE IS ANY CHANGE IN EXPECTATIONS OR THE ABOVE VIEW OR TIME SENSITIVE OPPORTUNITIES, MARKET ALERT SUBSCRIBERS WILL BE NOTIFIED IMMEDIATELY VIA EMAIL.

Disclaimer: DISCLAIMERS OF WARRANTIES AND LIMITATIONS ON LIABILITY. YOU AGREE THAT YOUR USE OF THE SUBSCRIPTION AND THE CONTENT AVAILABLE THROUGH THE SUBSCRIPTION IS ON AN “AS-IS”, “AS AVAILABLE” BASIS AND WE AND OUR INFORMATION PROVIDERS SPECIFICALLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In addition, Marketexpectation.com and its Information Providers make no representations or warranties of any kind in connection with the subject matter included on or the use of the Site, and use of the Site is subject to the disclaimers, terms and conditions of use found at the Site.
The Marketexpectation.com is not registered as a securities broker-dealer or investment adviser with any jurisdiction and is not providing any personalized financial, investment or tax advice. Marketexpectation.com cannot assess or guarantee the suitability of any particular investment to any personal situation. Accordingly, you bear complete responsibility for your own investment, financial, and tax research and decisions and should seek the advice of a qualified professional prior to making any decisions based on the Subscription. The Subscription is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. All opinions expressed and information and data provided therein are subject to change without notice. We do not undertake any duty or obligation to update any content of the Subscription to reflect current market conditions or other changes.

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Are Stocks Cheap or is it Smoke and Mirrors?

Many very influential Wall Street figures have been coming out endorsing this historic move higher in the stock market pointing to the easy money policy of the Federal Reserve and the relatively cheap average P/E (price to earnings) ratio of the S&P 500. So how effective has the Federal Reserve been and are stocks really cheap?

There is no doubt that the Federal Reserve has thrown everything and the kitchen sink at this anemic US economy in hopes to spark it back to life. But no matter how accommodating the Federal Reserve attempts to be, it requires the public to borrow money to achieve the desired effect, but with the average income in the United States down over the past 5 years these measures seem in jeopardy and possibly overstated (not considering the possible destructive effects of easy money).

The Federal Reserve’s efforts appears to be more like attempting to “pop the clutch” on a car out of gas then actually providing the fuel.

The second rational to this unheard of move higher in the stock market points to the relatively cheap average P/E ratio of the S&P 500 as a whole. A P/E ratio is calculated by taking a company’s net profit divided by all their outstanding shares.

Over the past 4 years most US companies have taken pride in their ability to cut cost and add to this all-important P/E ratio even as revenue growth as a whole has been just as anemic as the US economy. Today a popular means to supercharge a company’s P/E ratio has been the acceleration of their stock buy-back program (here some large US companies who have recently accelerated their buy back programs; IBM, Apple, Merck, Caterpillar, etc.) allowing them to make use of the cash builds on their balance sheets, which in a robust economy would be used to promote growth to their businesses.

When a company buys back their own shares they are absorbed into the company and reduce their total outstanding shares. Generally there two reasons a company would repurchase their own shares with one primary objective, which is to increase shareholder value.

1. A company may repurchase its shares to promote confidence in their business, especially if some sort of negative news has brought down their share price.

2. A company may repurchase their shares to improve their P/E ratio, since it reduces the denominator in determining the ratio thereby buying their growth multiple without actual growth in their business.

With companies accelerating their stock buy back programs and some even borrowing money to do it (i.e. Apple), it draws into question what their earnings growth rates are and how sustainable they are. As mentioned also, many companies are actually issuing debt to fund these repurchase programs that also brings a question of how leveraged these stocks are not taking into account traditional margin.

One thing is for sure, a program that allows a company to show earnings growth without growing is definitely a bit of smoke and mirrors.

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May 2013 – The Wall Street Robots

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May 2013 – The Wall Street RobotsAnother month has passed and expectations remain low thereby the bias remains bullish. Although the bias is bullish the Expectations Indicator has given us pause on taking any type of bullish stance when it signaled a likely pullback on 1/31/2013. The pullback did occur in the commodities market and currencies paired against the US dollar, but the stock market remains resilient.

“Choppy” would be the best way to describe the stock market over the past month. As discussed in the April 2013 Market Expectation Letter, the market appears to be exhibiting “bubble” characteristics with its uncanny ability to shrug off extremely bearish data points combined Wall Street’s thoughtless suggestions of buying equities purely on the basis of their under-performance to the rest of the market.

On April 23rd the Dow Jones Industrial Average lost 140 points in a matter of 2 minutes due to a hijacked Associated Press Twitter account that tweeted the White House had been bombed and the President was injured. The Tweet was only visible for 4 minutes. This extremely swift market response revealed the power of Wall Street’s black box automated trading systems the were originally created to take advantage of the volatility in the markets but now apparently are the primary driving force behind them.

In the April 2013 Market Expectation Letter “stay on the sidelines” position was taken. Today, with the choppy market momentum and the Wall Street robots in control we would continue to stand on the sidelines with a bias towards selling into the more likely then ever pullback.

It is important to understand that a pullback is when the bulls take profits and a sell off is where bulls take losses. So as long as expectations remain low we should expect any pullback to find support and resume higher.

If the pullback ensues we could look for support at some key levels on the DJIA (Dow Jones Industrial Average) specifically around (plus or minus 100 points) 13,800, 13,100, 12,700 or 12,000. The above support levels are not targets for the pullback but rather levels the market could find support and resume its bullish move higher.

At these levels we would look for the DJIA to find support and move higher and then attempt to retest that support level. If the retest fails to go through the support level, then the market would likely continue higher. If the retest breaks through the support level then the next lower listed support would be the target level where we would look for the same sequence of events to occur.

The above and below represents the opinion of the author and do not constitute a recommendation to buy or sell any financial products.

IF THERE IS ANY CHANGE IN EXPECTATIONS OR THE ABOVE VIEW OR TIME SENSITIVE OPPORTUNITIES, MARKET ALERT SUBSCRIBERS WILL BE NOTIFIED IMMEDIATELY VIA EMAIL.

Disclaimer: DISCLAIMERS OF WARRANTIES AND LIMITATIONS ON LIABILITY. YOU AGREE THAT YOUR USE OF THE SUBSCRIPTION AND THE CONTENT AVAILABLE THROUGH THE SUBSCRIPTION IS ON AN “AS-IS”, “AS AVAILABLE” BASIS AND WE AND OUR INFORMATION PROVIDERS SPECIFICALLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In addition, Marketexpectation.com and its Information Providers make no representations or warranties of any kind in connection with the subject matter included on or the use of the Site, and use of the Site is subject to the disclaimers, terms and conditions of use found at the Site.
The Marketexpectation.com is not registered as a securities broker-dealer or investment adviser with any jurisdiction and is not providing any personalized financial, investment or tax advice. Marketexpectation.com cannot assess or guarantee the suitability of any particular investment to any personal situation. Accordingly, you bear complete responsibility for your own investment, financial, and tax research and decisions and should seek the advice of a qualified professional prior to making any decisions based on the Subscription. The Subscription is provided solely for informational purposes, and does not constitute an offer or solicitation to buy or sell any securities. All opinions expressed and information and data provided therein are subject to change without notice. We do not undertake any duty or obligation to update any content of the Subscription to reflect current market conditions or other changes.

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The Stock Market – A Potential Runaway Train

Yesterday on April 23rd, 2013 at 1:08 PM ET the Dow Jones Industrial Average went down over 140 points in a matter of 2 minutes on a hoax. This hoax came from a hijacked Twitter account of the Associate Press that claimed the White House had been bombed. The Tweet was only visible for 4 minutes.

Today it is obvious that this reaction was not human but that of the automated trading systems that most of Wall Street employs to scrap as much profit out of the volatility that naturally exists in markets. Yesterday’s market movement has shown us that they systems no longer take advantage of volatility but rather are the driving force behind markets as a whole.

So as investors we should be thinking about these 2 minutes and what if it had lasted 10 or 30 minutes or more and the potential catastrophic effects it could have had.

In the April 2013 Market Expectation Letter the presence of a bubble forming was discussed and these actions that occurred yesterday further validate these concerns. What makes a bubble in a market so dangerous is the damage it can cause in very short period of time. We could go out to lunch up 10%, and return down 10%.

Even though the Expectations Indicator has signaled low expectations thereby a bullish bias since June 12, 2013, a bubble is a very dangerous market to tread in. A market can become a runaway train when a bubble pops. As also discussed in April’s Market Expectation Letter, sometimes it is better to just sit on the sidelines when a bubble is ensuing.

The above and below represents the opinion of the author and do not constitute a recommendation to buy or sell any financial products.

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