Advanced Mathematical & Cycle Analyses Point To A Severe Bear Market Ahead

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NYSE Chart investwithalex7/2/2015 -  A slight down day with the Dow Jones down 28 points (-0.16%) and the Nasdaq down 4 points (-0.08%). 

Considering today's overwhelming bullish sentiment, the chart above tells a different story. A much simpler story. The NYSE Index (largest stock composite by capitalization) hasn't gone anywhere in exactly 1 year. In fact, the index is down 2% since July of 2014. So, are we in a period of distribution and this is your last chance to sell -OR- is the stock market getting ready for a massive leg up. To answer that question, consider the analysis below.

Below is a comprehensive longer-term review of the stock market and what the next few years hold. 

In the early January of 2000, the US Economy wa s booming. The Dow was fast approaching 11,800 and the Nasdaq was a stone throws away from its improbable benchmark of 5,000. Everyone was making a ton of money and as far as most people were concerned, the future looked very bright.  So much so, that very few people predicted a bear market of 2000-2002, let alone a secular 2000-2017 bear market that was about to begin.

The only way to do so was to know and to understand the cyclical TIME structure oscillating within the stock market.  For instance, an analyst working with such time cycles would know that the stock market's 17-18 year cycle was topping out in conjunction with the 5 year cycle that started at 1994 bottom.  The bull market that started at the bottom in August of 1982 was coming to a conclusion. In fact, it would top out exactly 17.5 years after it had started or on January 14th, 2000 at 11,800. The 5 year cycle that started in December of 1994 would top out at exactly the same time; 5 years and 35 trading days after it had started.

What does this have to do with predicting a severe bear market of 2014/15-2017?

Everything.  Based on my work the stock market is a mathematically precise entity. And while there are hundreds of TIME cycles oscillating within the stock market at any one time, I will concentrate on only two to prove my point.  The 17-18 cycle and the 5 year cycles. We will look at these cycles over the last 100+ years and I will prove to you, without a shadow of a doubt, they work.

THE 17-18 YEAR CYCLE IN THE STOCK MARKET:

Long Term Dow Structure3

Long-term cycles within the stock market tend to oscillate going all the way back to the first day of trading, in May of 1790.  If you would be inclined, I would encourage you to verify that information for yourself. For our purposes we will start our analysis a little bit later or exactly 100 years ago. As the chart above indicates, the stock market tends to oscillate in clearly defined 17-18 year alternating Bull/Bear market cycles.

  • 17.5 Year Bull Market (1914 bottom to 1932 bottom): The previous bear market terminated in July of 1914. At that time the US stock market shut down for World War 1. The stock market remained closed between August of 1914 and December of 1914 (a very rare occurrence). When the market finally reopened in December of 1914 it immediately began a rally that would not terminate until October of 1929. Followed by a now famous 1929 stock market crash and a massive 90% 3 year decline. The cycle terminated at the bottom in 1932, completing the 17.5 year bull market cycle at that time.

*Note: It is important to address the 1929-1932 bear market and its impact on the overall 1914-1932 Bull Market cycle. It is a complex matter to discuss without sufficient background or understanding, but the final (short-term) structural composition of this Bull Cycle inverted over the last 3 years (1929-1932). Mostly due to a massive rally between 1924-1929 and a number of down cycles converging on this time period at the same time.  Regardless, the overall cycle lasted 17.5 years.

  • 17 Year BEAR Market (1932 bottom to 1949 bottom): The cycle originated at the bottom in July of 1932 and lasted until June of 1949. During this period of time we had a post great depression bounce, 1937 crash and World War 2. Yet, despite the overall upward trajectory, this clearly defined 1949 bottom remained 60% below its 1929 top and well below both its 1937 and 1942 tops.
  • 17 Year BULL Market (1949 bottom to 1966 top): The market surged higher between 1949 bottom and 1966 top. This was the so called "Golden Age" of post war reconstruction and the American industrial boom. During this time the Dow appreciated over 500% in a clearly defined bull market cycle.
  • 16.5 Year BEAR Market (1966 top to 1982 bottom): The market stayed relatively flat during this period of time with a few notable declines of 30-50%. With the 1972-1974 mid cycle decline of 54% being the largest one.  This clearly defined bear market completed in August of 1982. Approximately 25% below its 1966 top.
  • 17.5 Year BULL Market (1982 bottom to 2000 top): A very well known period and a clearly defined bull market. The market surged higher from its August of 1982 bottom to reach its historic top in January of 2000. During this time the Dow appreciated over 1,400% in one of the strongest bull markets in history.
  • 17 Year BEAR Market (2000 top to 2017 bottom): Even though the market is sitting near all time highs (as of this writing in January of 2014) and even though most people have assumed that the new bull market has started, in relative terms the market hasn't appreciated very much since its top in 2000. The Nasdaq is still down. Plus, with the final down leg of this bear market being ahead of us (based on my mathematical and timing work), the BEAR market of 2000-2017 should complete itself in a negative territory or below its 2000 top.

It is important to note that the small variation (of +/- 1 year) in duration of these cycles is caused by smaller or larger cycles arriving at the same time. As such and based on the cycles above, we are no longer working in an arbitrary fashion when it comes to predicting the stock market.  In other words, if the stock market repeats a clearly defined 17-18 year Bull/Bear cycle over a 220 year period of time (since 1790) and does so without interruption,  it is safe to assume that the future is predictable and not random.

THE 5 YEAR CYCLE IN THE STOCK MARKET

One other easily identifiable cycle within the stock market is the 5 year cycle. These 5 year cycles represent one completed growth pattern or one completed Bull or Bear cycle. Typically, they tend to appear for 5 years, disappear and then reappear at a certain point in the future. While they are not sequential as the 17-18 year cycle above, once their place within the overall stock market is understood, they show up at exactly the right time.  For instance,

  • 1914 -1920: Bull Market
  • 1924-1929: Bull Market (followed by a 1929 crash)
  • 1932-1937: Bull Market (followed by a 1937 crash)
  • 1937-1942: Bear Market
  • 1966-1971: Bear Market
  • 1982-1987: Bull Market (followed by a 1987 crash)
  • 1994-2000: Bull Market (followed by a 2000 crash)
  • 2002-2007: Bull Market (followed by a 2007 crash)
  • 2009- July of 2014: Bull Market

One thing to understand about these 5 Year cycles is that they are exact. They have much lower level variance as compared to their longer counterparts. Essentially, we are NOT talking about 5 years +/- 6 months. We are talking about 5 years +/- a few days. For instance, the 2002-2007cycle started on October 10th, 2002 (at 2002 bottom) and terminated on October 11th, 2007. If you are counting, that is exactly 5 Years and 1 day or scary accurate. I encourage you to study the other cycles outlined above in order to prove to yourself how shockingly accurate they all are.

 CONCLUSION: 

In summary, predicting a bear market of 2015-2017 is rather simple.  All 17-18 year bear cycles end with a 2-3 year bear market. For instance, 1912-1914, 1946-1949 and 1979-1982. And while most believe that the secular bear market ended at 2009 bottom, it is not the case. The secular bear market of 2000-2017 is still in effect and will terminate only when the year 2017 is reached. Although the final price bottom will be higher than the mid-cycle bottom reached in March of 2009.

Further, the 5-Year cycle that started on March 6th, 2009 bottom terminated on July 16th, 2014. Suggesting that the stock market is now ready to initiate its bear leg (despite recent higher highs). When I combine this cyclical analysis with the rest of my mathematical and timing work, the outcome is crystal clear. A severe bear market of 2015-2017 is just around the corner.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please NoteA bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. June 5th, 2015  InvestWithAlex.com

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Advanced Mathematical & Cycle Analysis Points To A Severe Bear Market Ahead  Google

COT Reports & Weekly Market Calendar – July 3rd, 2015

COT Reports: If you are not familiar, the Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions. In other words, it gives us a preview of what commercial interests are buying or selling. As the theory goes, we want to be on the same side of the trade as the big guys.

While not a good timing tool, currencies, commodities and the stock market (to a lesser extent) tend to move in the direction of the bets made by the commercial players. Not always, but often enough.

Latest data, as of June 23rd, 2015

Currencies: 

  • USD:  1K Long Vs. 59K Short - Significant short interest remains. No major change.
  • Canadian Dollar: 44K Long Vs. 37K Short - No change. Neutral
  • British Pound: 45K Long Vs. 7K Short - Commercials decreased their short position - more long now.
  • Japanese Yen: 129K Long Vs. 1K Short - Large long position in Yen remains.
  • Euro: 125K Long Vs. 8K Short - Significant long position remains. Slight increase in long position.
  • Australian Dollar: 74K Long Vs. 3K Short- Significant long position. Slight increase in long position

Conclusion: Based on the information above, commercial interests expect the US Dollar to decline while British Pound, Euro, Yen and Australian Dollar rally. 

Markets/Commodities/Volatility: 

  • E-Mini S&P 500: 237K Long Vs. 482K Short - Significant decrease in net short exposure. Although, a substantial short position remains.
  • VIX: 94K Long Vs. 15K Short - Slight decrease in long position. Still, heavy long position suggests market turbulence ahead.
  • Gold: 69K Long Vs. 95K Short - No change. Still neutral.

Conclusion: Based on the information above, commercial interests expect the stock market to decline as volatility surges higher.

Next Week's Market Calendar: 

  • Q-2 Earnings.
  • July 8th - FOMC Minutes

COT Reports & Weekly Market Calendar - July 3rd, 2015 Google

It’s Hard To Be A Bear When Everyone Is Bullish. Part 5

bear market thinking investwithalex

Explanation: Being a bear while everyone else is bullish is one of the most challenging propositions in investing. For instance, 'Short selling is an incredibly lonely proposition,' billionaire hedge fund manager Bill Ackman says.  Yet, it can pay off big time if you get your TIMING right. However, since most people, even professional investors are terrified of shorting, I will introduce a quick series about short selling, proper risk management when short selling and the best way to maximize returns. This was to be a part of my never finished book (no time to finish it).......

Part 4.

  1. Most Stocks & Markets Are Long Centric.

Indeed, they are. However, this means very little to an investor who is going through a pro-longed bear market or a significant decline in one of his or her securities.  For instance, this idea becomes meaningless to someone who was fully invested in 1929. As by 1932 that portfolio had lost 90% of its value. Or to someone who had to endure a 16 year bear market between 1966 and 1982. Or to someone who has seen miniscule results since the 2000 top. As outlined earlier.

Once more, short positions should not be viewed as a long-term investment. They should be viewed in the light of hedging and maximizing returns when the market is not cooperating with its overall "long centric" premise. As was outlined and explained in one of my earlier books "Timed Value", the stock market tends to move in 17-18 year alternating Bull/Bear market phases.  And while it would make perfect sense to remain fully invested and 100% long during bull markets, it would make very little sense to continue on with the same strategy in a bear market.  After all, doing so would lead only to frustration and losses.  Short selling helps us avoid both problems in the proper market environment.

  1. Additional costs associated with taking a short position.

Depending on your broker, the transactional costs associated with taking a short position are typically equal to you taking a long position.  However, you do tend to pay more though margin interest and dividend payments.  For instance, if the short position begins to move against you, money will be removed from your cash balance and into your margin account. If you do not have enough cash to cover the losses you begin to borrow on margin, thereby accruing margin interest charges. Otherwise, if you do have enough cash in your account to cover your short losses (if any), no margin interest costs will be inquired.

When it comes to dividend payments you are responsible for paying underlying stock's dividend if you are holding the stock short ex-dividend date.  Without getting into the details of the entire process, you must pay the dividend on the underlying security if 1. The underlying security has a dividend associated with it and 2. You are holding this security short on ex-dividend date. At times, such costs can be significant.

Yet, for the most part, both costs can be mitigated or largely eliminated when short selling is approached in an appropriate fashion. When it comes to margin interest, simply maintain a cash balance big enough to cover your short positions and any losses that you might inquire if the positions move against you.  That way your margin account is never triggered and no interest charges occur. In terms of dividends, either avoid shorting stocks that pay dividends or get out of your position before the ex-dividend date is triggered.  Plus, unless you are shorting a specific stock for company specific reasons, you shouldn't be shorting stocks that pay dividends. Simply choose another non dividend paying stock in the same industry and short that one. And if you are to do both, the costs of going short become equal to the costs of going long.

In summary and as the points above show, when short selling is approached in an appropriate way, the risks associated with the practice are reduced to a bare minimum. And while the overall risk profile might be slightly higher than going long, when executed properly, going short is not nearly as risky as the investment industry makes it out to be. If anything, the practice plays a crucial part in a powerful investment approach discussed bellow.

To be continued next week. 

z32

It’s Hard To Be A Bear When Everyone Is Bullish. Part 5  Google

Investment Inspiration Of The Day

If you would like to learn more about his story, you can start here. BBC: Holocaust 'hero' Sir Nicholas Winton dies aged 106 We need more people like him on this rock.

Sir Nicholas

Silicon Valley’s Illiquid Bubble Update.

silicon-valley-bubble-investwithalex

Mark Cuban is dead on in identifying Silicon Valley's Tech Bubble 2.0: Why This Tech Bubble is Worse Than the Tech Bubble of 2000.  At the end of the day, Silicon Valley has about as mush liquidity as California's dried up reservoirs. Something that Angel investors, venture capitalists and stock option millionaires are about to find out.

How big is this bubble? Consider the following. Uber's valuation went from $60 Million in 2011 to $50 Billion today(not a typo).  They must be making a ton of money.....right? WRONG. Bloomberg estimates that Uber showed $470 million in operating losses with $415 million in revenue last year. Plus, the company was set a major legal blow in California by requiring their drivers to be classified as employees. And as far as I am concerned, it is just a matter of time before other states and countries regulate Uber out of business to protect taxi drivers.

In other words, the valuation above is not only outrageous, it is, how should I put it, retardedly outrageous.

Back to Mark Cuban. It is now evident that most market pundits out there are dismissing Mark's view. And while Mark talks about Angel Investors and illiquidity in that market, his analysis can just as easily be applied to today's stock market. More about that in a second.

First, here is what most people don't realize about Mark Cuban. After selling his first business Mark became a heck of a trader and investor in the 1990's. His returns were so good at the time that Goldman Sachs tried to bring him in order to figure out what he was doing. This same ability helped him unload Broadcast.com for $5.7 Billion to Yahoo right at the top of the tech bubble. Here is what he thinks.

I have absolutely not doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher. Why? Because there is ZERO liquidity for any of those investments. None. Zero. Zip.

So why is this bubble far worse than the tech bubble of 2000 ?

Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity. If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it ?

We often talk about the stock market, but we rarely look at this side of the equation. Mark is absolutely right. If you are an Angel Investors, good luck getting your money out. Especially when today's Silicon Valley's bubble bursts. Plus, the chances of hitting a good exit in tech are about as good as winning a lottery.

What's more, the bubble Mark Cuban has identified in the tech industry is the same bubble I see in the stock market. The drivers behind both are the same. The only difference is the amount of liquidity available.

Z31

Silicon Valley's Illiquid Bubble Update. Google

Is Today’s “Real” Stock Market P/E Ratio Above 30?

Daily Chart Uly 1 InvestWithAlex

7/1/2015- A positive day with the Dow Jones up 158 points (+0.90%) and the Nasdaq up 26 points (+0.53%)

A massive and rather rapid stock market decline is coming later on this year. And while we won't have a crash, considering the amount of margin debt out there, quite a few people will get wiped out. If you would like to find out exactly when this move will develop, to the day, please Click Here. 

A number of quite important opinions about today's stock market. Let's take a look.

As the stock market climbs ever higher, professional investors are warning that companies are presenting misleading versions of their results that ignore a wide variety of normal costs of running a business to make it seem like they're doing better than they really are.

We have talked about this before. BlackRock: Most Of Corporate Earnings Growth (If Any) Is Accounting Driven

I have said it before and I will say it again. Today's distortions are so great that the FED's Ponzi Finance makes Bernie Madoff look like a boy scout. But its more than that. Everyone is playing the same accounting game. Whether it is through low interest rates, share buybacks or outright accounting gimmicks.

While impossible to calculate, I would say that a more normalized environment would add 5 to 10 points to today's P/E ratios. By the way, Shiller's Adjusted P/E Ratio is already at 27. Turning an already expensive market into "are you freaking kidding me overpriced accident" waiting to happen.

Never before has a rally in the U.S. stock market gone on this long without a Federal Reserve interest-rate increase. Expecting valuations to keep rising once one comes is asking too much, if history is any guide.

As I have suggested before,  the FED finds itself in an impossible situation. It is stuck in the corner. With all of the misallocations over the last 15-20 years about to come crashing down on them. They best they can hope for at this stage is debt monetization and run away inflation. But with bond prices possibly collapsing, they might not even have that option.

Interesting times ahead, that's for sure.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please NoteA bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. July 1st, 2015  InvestWithAlex.com

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Is Today's Real Stock Market P/E Ratio Above 30?  Google

It’s Hard To Be A Bear When Everyone Is Bullish. Part 4

bear market thinking investwithalex

Explanation: Being a bear while everyone else is bullish is one of the most challenging propositions in investing. For instance, 'Short selling is an incredibly lonely proposition,' billionaire hedge fund manager Bill Ackman says.  Yet, it can pay off big time if you get your TIMING right. However, since most people, even professional investors are terrified of shorting, I will introduce a quick series about short selling, proper risk management when short selling and the best way to maximize returns. This was to be a part of my never finished book (no time to finish it).......

Part 3.

Let's now take a closer look at each one of these points to see if they hold up to scrutiny.

  1. Unlimited Loss Potential:

When you open up a short position you open yourself up to unlimited losses. Theoretically.  Let's assume that you have done your research and you believe that Apple's Inc (AAPL) stock price is about to decline from $100 a share to $50 a share. By going short at $100 and presumably getting out at some point in the future at $50 a share you are planning to generate a net gain of $50 or 50%. As a result, you take a short position at $100.

Unfortunately for you, the next morning Apple goes on to announce that it had created a time machine, went into the future and brought back technology from the year 2225. What's more, they will make this technology available over the next few months and by doing so will literally take over the world and destroy the competition. As a result, Apple's stock price precedes to surge to $1,000 or 900% a share higher even before the market opens

Guess what just happened to your short position? That's right; you just lost $900 a share or 900%. It now becomes your responsibility to close this trade out at a massive loss before going and crying to your mommy and daddy. That's what most in the financial industry mean when they indicate that your losses can be unlimited when you open up a short position.

Rebuttal:  

The scenario above is hypothetical at best. In reality, very few stocks open up with gap ups of 5-10% higher, let alone 100% or higher. It does happen on rare occasions, but you shouldn't be shorting such stocks to begin with.  When it does happen, it typically happens to stocks in the Bio Tech industry after their drug is approved by the FDA or stocks that might be acquired in a merger or stocks with upside earnings surprises or perhaps stocks of companies that have just reached some sort of a favorable resolution in a big legal matter, etc.....  Point being, large overnight gains or "gap ups" shouldn't come out of the blue. If you approach the process of short selling from a well researched position, as you should, you wouldn't be shorting such stock to begin with.

In terms of your short stocks appreciating over time, if you apply proper trading rules, this shouldn't be a problem.  Just as you should have trailing stop losses with all of your long positions, you should exercise the same discipline when going short. If the marker proceeds to move against your short position, the stop loss should take you out when the time is right. Either realizing gains or limiting losses in the process.  Just as it would if you where holding a long position.

In conclusion, outside of seldom "God Event" occurrences in certain stocks, equities that you shouldn't be shorting to begin with, short selling is about just as risky as going long when proper investment rules are applied.

  1. The Maximum Gain Is Only 100%.

It is true, the maximum gain you can achieve when going short is just 100%. Yet, that type of a return is unusual as well. For that to happen the underlying stock price must hit zero. An occurrence most typically associated with the underlying business filing for bankruptcy or otherwise being delisted from the exchange.

The financial crisis of 2008 presents us with a perfect opportunity to illustrate just that. In the darkest days of summer of 2008, stock prices of many of the subprime lenders collapsed in a matter of 2-3 weeks.  In many instances going from $50-60 share to $1-2 a share before filing for bankruptcy protection and being delisted from the exchanges.   A rare occurrence, indeed.

And while your gains are limited to 100%, it is not a bad thing when you consider what our primary objective in this case is. Remember, we are not trying to identify stocks that will appreciate 1,000% or more over the next 5 years. We are simply trying to protect our existing long positions while generating extra returns on the downside. Essentially, we are trying to minimize risk while moving with the overall market or underlying security.  Short selling allows us to do just that.

To Be Continued Tomorrow......

z32

It’s Hard To Be A Bear When Everyone Is Bullish. Part 4 Google

Investment Wisdom Of The Day

investment wisdom of the day2

Z30

Investment Wisdom Of The Day Google

How To Invest In The Next Car Revolution

car revolution investwithalex

Self-driving cars are expected to change the way we live, work and interact with each other. So much so that some expect this change to be in full swing by 2025. While I have my doubts, it is an important trend to follow if you are an investor.

For instance, this trend has the ability to decimate the tracking industry while other multi-billion dollar companies will seemingly appear out of nowhere. Let's take a look at some of the other probable outcomes.

  • Mind-boggling cost of overhauling our entire road system, traffic management and signposting. Or insurance regulations. Or driving tests. Or road tax. Or liability issues. Someone will make or lose a lot of money here.
  • Road death is the eighth leading cause of death on the planet, with between 90% and 95% of car accidents the fault of human error. The economic cost of road accidents is estimated to be around $277bn in 2013.
  • City design will change enormously, even just in the short term. With great swathes of city real estate covered in car parks, self parking cars can cut down on that dramatically.
  • Fuel savings will be immense. Autonomous cars drive consistently and economically, without man’s strange insistence of moving one, righteous, car up the queue by overtaking, and aggressively lane-changing.
  • Morgan Stanley projected autonomous cars could save the US $170bn in lower fuel costs, and another $138bn in congestion avoidance. And that’s just fossil fuels. Which could also be a thing of the past.
  • Another option to charge your car is wireless induction charging – a primary coil is ferreted away in your garage floor, a secondary coil is incorporated into the floor of the car, and an alternating magnetic field charges the battery.
  • Personal insurance will mostly likely become defunct, because as the car takes responsibility for safety, liability will shift to the manufacturers themselves, with the ABI – the Association of British Insurers telling Factor: “The key change – and the potential shift to product liability – comes when the driver is not expected to oversee or monitor the vehicle and when they have ceded full driving responsibility to the car itself.
  • ‘Sleeper cars’ will become available for long journeys where you’ll simply set off at night, tuck yourself into the incorporated bed, with blacked-out windows if there are windows at all, and wake up right outside your destination, be it Land’s End to John O’Groats, or a cross-Europe trip.
  • Freight will be completely automated, putting every single lorry driver out of work. Deliveries will be automated, using the highways at night when there’s no congestion and economies of scale can be greater, without pesky regulations forcing weak-bodied professional drivers to take breaks.
  • Rather than own a vehicle, you’ll most likely whip out your smartphone and call an automated car, just like we would an Uber taxi today. Prod your destination into the app and off you’ll go, automatically billed at the end.

And that's just to name a few possibilities. How all of this will shake out and how long it will take is anyone's guess. If the human race doesn't manage to destroy itself over the next 20 years, as per my other forecast, this change has the capability of delivering massive gains to enterprising investors. Definitely put it on your "watch list". Z30

How To Invest In The Next Car Revolution Google

Shocking: Buy The Dip Mentality Can Lead To A Crash

Daily Chart June 30 InvestWithAlex

6/30/2015 - A positive day with the Dow Jones up 21 points (+0.12%) and the Nasdaq up 28 points (+0.57%)

Well, that was fast. Just as predicted here yesterday, any small bounce would surely bring out perma bulls with the "this market is bulletproof and buy the dip" mentality. Mr. Cramer delivers.

Cramer: Amazing world chaos-resistant stocks

 "I say you buy some very special biotechs that have refused to come down until now. That's right, I think you use this marketwide selloff as an opportunity to pick up the speculative development stage biotech names that haven't had a price break in ages," the "Mad Money" host said.

Seriously....Biotech??? Biotech is the most speculative sector within the stock market. It is equivalent to where the Internet stocks were right before the 2000 crash.  And while the market will bounce to at least close Monday's gap, I wouldn't necessarily be loading up on Biotech here.

Anyway, we are all free to make our own decision. With that in mind, I would rather listen to Bill Gross. Make sure you read his recently published statement in full.

Current concerns in the financial markets center around the absence of liquidity and the effect it might have on future market prices. In 2008/2009, markets experienced not only a Minsky moment but a liquidity implosion, as levered investors were forced to delever. Ultimately the purge threatened even the safest and most liquid of investments. Several money market funds appeared to 'break the buck' which in turn threatened the $4 trillion overnight repo market – the center core of our current finance-based economy."

But shadow banking structures — unlike cash securities — require counterparty relationships that require more and more margin if prices should decline. That is why PIMCO’s safe haven claim of their use of derivatives is so counterintuitive. While private equity and hedge funds have built-in "gates" to prevent an overnight exit, mutual funds and ETFs do not. That an ETF can satisfy redemption with underlying bonds or shares, only raises the nightmare possibility of a disillusioned and uninformed public throwing in the towel once again after they receive thousands of individual odd lot pieces under such circumstances. But even in milder "left tail scenarios" it is price that makes the difference to mutual fund and ETF holders alike, and when liquidity is scarce, prices usually go down not up, given a Minsky moment. Long used to the inevitability of capital gains, investors and markets have not been tested during a stretch of time when prices go down and policymakers’ hands are tied to perform their historical function of buyer of last resort. It's then that liquidity will be tested.

In other words and as I tend to visualize it, we are sitting on top of a 40ft containter full of TNT, with a lit fuse disappearing inside of it. We have talked about disappearing liquidity before. Plus, given today's overvaluation levels, there is just way too much risk in our financial system.

We have faced a similar environment pre 1987 crash. That is to say, should the market correct 10-15% in a rather rapid fashion, we might have a subsequent flash crash scenario that will take us down another 25-40%.   Carl Icahn, Jim Rogers and now Bill Gross are warning about this. Who else do you need?

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. June 30th 2015  InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Shocking: Buy The Dip Mentality Can Lead To A Crash Google