# 39yr low # bears, Q ratio 2nd highest,Schiller PE 3rd highest, 49 record closes 1929



## lonewolf (Jun 12, 2012)

Stock market United States

Tobin Q ratio 1.18 second highest in history

Shiller cyclically adjusted PE 27.2 3rd highest in history

95% of earnings in S&P going to share buy backs this year

Investors intelligence number of bears @ 39 year lows

49 record closes this year last seen in 1929


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## Janus (Oct 23, 2013)

Holy smokes you're using valid metrics.

I agree! We're in scary territory right now for US equities, which is why I'm staying away and looking elsewhere (France mainly).


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## DmDave (Dec 1, 2014)

OMG! The US market is overvalued and let's sell our shares to switch to cash and bond! Guess who will buy your shares? Me.


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## Janus (Oct 23, 2013)

DmDave said:


> OMG! The US market is overvalued and let's sell our shares to switch to cash and bond! Guess who will buy your shares? Me.


Who said they're selling?


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## lonewolf (Jun 12, 2012)

DmDave said:


> OMG! The US market is overvalued and let's sell our shares to switch to cash and bond! Guess who will buy your shares? Me.


Dave you can make the last 10% +/- in the rally, I never made my money staying till top tick. Being 50% wrong will not hurt to much (can buy @ lower prices), Those that will be 100% or more wrong (leveraged) @ historic tops can end up getting hurt badly. I think investors will get hurt on this one historic low levels of money in cash accounts & high NYSE margin debt. Some are going to be 100% or more wrong.

Something is either true or it is not true so either your right or your wrong ( cant really be 50% wrong for a given fact), I play the probabilities when in my favour to win but I can never be 100% sure so I do not put 100% or more on the table.


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## dogcom (May 23, 2009)

Everything is becoming the highest in history because the intervention and manipulation is the greatest in history. This cannot stop until it completely breaks. The problem is if you hold cash you fall behind the money printing and if you own stocks on paper you risk an enormous decline or a continued huge climb until the bond market breaks. Besides cash and some stocks one will need to buy real things and necessities while you can still trade fiat dollars for it in case of emergencies or having it in case inflation comes completely unglued due to money printing.

All things are possible at this point and it is best to be very diversified in paper and real assets.


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## lonewolf (Jun 12, 2012)

Dogcom

break of the bond market will cause a bigger depression then a break of the stock market.



I just read the market has had another Hindenburg Omen. Have to be carefull though some technicians do not follow the rules properly.

I was looking to see if I could find data on the daily advance decline ratio on the NYSE. I couldn't find the data. Peter Elades has developed an indicator that has a very good track record for market tops without many false signals. Wanted to look @ data to see if the sign of the bear was triggered from the advance decline ratio.


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## dogcom (May 23, 2009)

You hit the nail on the head lonewolf, the bond market is where you will find the bigger depression. They have gone all in in their manipulations and will not stop until the bond market stops them. TA is being used as a tool to further manipulate and get a bigger bang for the manipulation dollar.


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## geoffh (Nov 15, 2014)

I agree that the market is starting to look top, but I've thought that for 6 months and that's one heck of a pain trade. I think what the OP missed with his ;High Shiller PE + low # of bears + high rates of buybacks = market top' theory is that there are a number of factors that explain why these numbers are the way they are.

For Shiller, it's a very helpful ratio (much more than regular P/E) but it is backward looking. Equity prices are discounted on forward P/E numbers, and if you substitute those into the formula, you get a much lower figure (15 on a forward basis vs 27.2 on a TTM basis). Those numbers are obviously vulnerable if we get a big shock to the system, but you can't invest assuming a black swan event every year. 

What's really driving this rally are share buybacks, which I think get too much play, and profit margin growth, which doesn't get nearly enough. It's gone largely unnoticed, but corporate margins have grown at a pace never before seen in the post WW2 era (see






). That's the real story; companies are more efficient, are employing few people, and are cranking out huge profits that continue to surprise to the upside. 

Where I think the risk is is global demand. 40% of S&P500 earnings are derived from outside the US. With the China slowdown, the European deflation threat, and Japan in its third recession in seven years, those earnings may take a turn by Q2 or Q3 of next year. Once we start seeing downward earnings revisions, watch out below. 

My two cents.


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## Rusty O'Toole (Feb 1, 2012)

You forgot that the S&P just closed over its 5 day moving average every day for 29 days in a row. A new record, beating the old record of 28 days set in 1928.


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## DmDave (Dec 1, 2014)

Everyone seems to be skeptical and scare of the US market, but what is it really? Is it because their economy is finally picking up steam? The latest job report that came out on Friday pointed to an expending economy. I don't care about the argument that they're all McJobs, a job is a job. A paying job is better than non-paying unemployment. 

As for the historical highs of the S&P 500 over the last few months, you can sit on the sideline and watch stocks go higher and higher, waiting for that crash that everyone seems to see that in hindsight, and then proclaim that you were right. Or you can just accept the fact that US is finally recovering, companies are turning profits and are now gradually hiring people to meet demand. The string of record highs are nothing more than companies growing fatter and fatter with profits, it does not mean high price will lead to price collapse. It is an illusion to think you're smarter than all the other market participants, some of whom work on Wall Street and are a lot smarter than us forum posters.


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## Janus (Oct 23, 2013)

DmDave said:


> It is an illusion to think you're smarter than all the other market participants, some of whom work on Wall Street and are a lot smarter than us forum posters.


You give Wall Street *way* too much credit. There's a reason Buffett stayed in Omaha.


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## geoffh (Nov 15, 2014)

Smart does not equal an enhanced ability to make money. I know tons of CFA/MBA/Ph.d types in finance who have great ideas but lots of trouble implementing them and an inability to outperform the market. I'm a firm believer that individual investors actually have the advantage over institutional investment firms. Think about it, for a hedge fund to "outperform," they need to generate risk-adjusted returns in 4-5% higher than their benchmark just to break even. They have costs associated with paying staff, having office space, compliance, legal, and performance fees. Agree with Janus, above. Wall and Bay streets have people who are very confident in their own ability but most don't have the results to justify that confidence.


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## DmDave (Dec 1, 2014)

Of course they're smarter than us mere mortals, especially individual investors. What do you think they spend their budget on, booze and blow? They spent it on research as well as getting the fastest optic fibre cable to the exchange to beat out other competitors. Why they don't outperform consistently is because there are just too many smart people attracted to Wall Street, it just becomes smart vs smart. Imagine a basketball game played by amateurs, that's us. Wall Street's version of a basketball game would have a team of 5 Michael Jordan's playing against 5 other Michael Jordan's. Extend this analogy to the entire Wall Street and you will see it is teams of MJ's against teams of MJ's indefinitely. You can imagine no one team will dominate the court, that's why outperformance is so hard to come by. To think that us small time investors can outsmart and outperform Wall Street, by knowing something that they don't know and take advantage of it on the market, is just ludicrous.

Don't get me started on day traders, they actually think they're faster than supercomputers that use algorithm to trade, and are situated in the same block as the NY Exchange. Do they honestly think their internet trade is faster than the guys on Wall St?


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## lonewolf (Jun 12, 2012)

The mood of the masses can effect the thinking of even the most advanced of intellect. Issac Newton lost money in the stock market not because he was not smart enough but because of his lack of commitment to reason.


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## geoffh (Nov 15, 2014)

DmDave said:


> Of course they're smarter than us mere mortals, especially individual investors. What do you think they spend their budget on, booze and blow? They spent it on research as well as getting the fastest optic fibre cable to the exchange to beat out other competitors. Why they don't outperform consistently is because there are just too many smart people attracted to Wall Street, it just becomes smart vs smart. Imagine a basketball game played by amateurs, that's us. Wall Street's version of a basketball game would have a team of 5 Michael Jordan's playing against 5 other Michael Jordan's. Extend this analogy to the entire Wall Street and you will see it is teams of MJ's against teams of MJ's indefinitely. You can imagine no one team will dominate the court, that's why outperformance is so hard to come by. To think that us small time investors can outsmart and outperform Wall Street, by knowing something that they don't know and take advantage of it on the market, is just ludicrous.
> 
> Don't get me started on day traders, they actually think they're faster than supercomputers that use algorithm to trade, and are situated in the same block as the NY Exchange. Do they honestly think their internet trade is faster than the guys on Wall St?


You're comparing apples to oranges and you analogy doesn't fit here because individual investors and high-frequency traders are not playing the same game. Sure, if you as a retail trader think that you can play the same game as HFTs, you're screwed. They're arbitraging ETFs against the basket of stocks or futures they hold, they are trading in and out of stocks in seconds or less based on their statistical relationship to each other, providing liquidity to collect rebates, etc. However, if you are a day trader or swing trader that wants to take advantage of a perceived mispricing (say for example, you believe some energy names have been oversold), Wall/Bay street high frequency guys are actually going to help you, not hurt you. They help because they bring an incredible amount of liquidity and efficiency to the market. 30 years ago, it cost over $100 to place an equity trade and the bid/ask spreads were in eights or quarters. Now, we have penny-wide markets, ETFs, and commissions that are effectively zero. 

Being a successful investor isn't necessarily about outsmarting some professional. If you held SPY and XIU for the past 6 years, you would be outperforming 80% of these professionals.


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## DmDave (Dec 1, 2014)

^^ You're just contradicting yourself when you said the Wall St people are overconfidence, yet in your previous post you're calling the top of the market, how could you be so sure that it's the top, based on the number of record closes? If you're calling top then you better start selling your shares, or better yet, shorting them. But don't forget for every trade to happen, there is a counterparty who thinks the opposite. My point is that the other invisible party could be a someone form Goldman Sachs, JP Morgan, or even a supercomputer. Suddenly you don't look so smart.

By the same analogy, everyone who says the market is frothy and scary obviously knows more than the average investor and money managers on Wall Street, and must also suffer from over confidence and illusion of control.

Of course an index approach will beat out 80% of professional, because it is the market, and I'm using the cheapest way to hire all those Wall Street fund managers to discover price of all the stocks in the world, without spending more than 0.5% of my asset.


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## dogcom (May 23, 2009)

In today's world Wallstreet can get information and have the hft to act on it before investors or traders can. Also as long as the Fed or government is behind criminal acts of manipulation, trading or giving information that we can't get in the same fashion then it is above the law. If however the likes of JP Morgan or whoever get caught in a way that punishment is unavoidable then they get a fine which is a slap on the wrist for them and no one goes to jail. Of course if we do these sorts of things we go to jail. 

Going short even if we have seen the top can still easily be a losing trade. A top can take a long time to develop and the rallies can destroy short positions along the way.


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## lonewolf (Jun 12, 2012)

dogcom using Trade miner as a stand alone product from Oct 28 2013 - Nov 6 2014. Based on the parameters I placed into trade miner the following would have been the results if I would have taken all the trades. (the parameters were put in place before I knew what the result would be. The days are calendar days not trading days. Based on the timing of the trades there would have been no more then 2 trades @ one time. The trades would have all been to the long side. I back tested 2008 & even that year would have been a positive year based on the parameters that I put into trade miner. 

14 days +7.4%
29 days +6.55%
45 days +16.96
21 days -.80%
26 days +7.68%
84 days +11.9
28 days +9.04
63 days -2.43
25 days -2.02
21 days +8.19
35 days +.3
44 days -3.58
28 days +32.01


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## Pluto (Sep 12, 2013)

DmDave said:


> Everyone seems to be skeptical and scare of the US market, but what is it really? Is it because their economy is finally picking up steam? The latest job report that came out on Friday pointed to an expending economy. I don't care about the argument that they're all McJobs, a job is a job. A paying job is better than non-paying unemployment.
> 
> As for the historical highs of the S&P 500 over the last few months, you can sit on the sideline and watch stocks go higher and higher, waiting for that crash that everyone seems to see that in hindsight, and then proclaim that you were right. Or you can just accept the fact that US is finally recovering, companies are turning profits and are now gradually hiring people to meet demand. The string of record highs are nothing more than companies growing fatter and fatter with profits, it does not mean high price will lead to price collapse. It is an illusion to think you're smarter than all the other market participants, some of whom work on Wall Street and are a lot smarter than us forum posters.


Sorry DmDave, your analysis here is completely flawed. Your premise and prediction is: jobs point to expanding economy, therefore stocks will go up. 
Do you have a reference for that? Do you have any historical data that proves or indicates that low unemployment means stocks will go up? 
August 1987 unemployment was low, the economy was expanding, the Dow p/e was about 16, and stocks fell 40%
Year 2000 unemployment was low, and stock indexes fell for about 2 years. 
Year 2007 unemployment was low, market topped out and fell precipitously. 
So when you predict higher and higher stock prices, because unemployment is low, what are you talking about? 

Another of your assumptions is that people can't predict stock market direction, then you predict higher and higher prices. If one can not predict, why do you predict? 

Every thing the OP mentioned in his original post is valid, and pointing to a precarious market. The market isn't as strong as it looks. I don't really predict myself, I try to calculate the odds. I don't really know with precision and in advance where and when the top will be, but the odds are we are a lot closer to a top now, than we were back in 2010 when unemployment was high.


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## Pluto (Sep 12, 2013)

lonewolf said:


> Dogcom
> 
> break of the bond market will cause a bigger depression then a break of the stock market.
> 
> ...


Advances vs Declines: rose during 2014 up to August, then dropped off sharply. You can get daily AD stats here: https://finance.yahoo.com/stock-center/
The US indexes are in new high territory, but the AD line isn't. Another item putting the odds against us. When I add it all up, the odds don't look great. My biggest concern along with over valuations, is fast US job growth which will make the US fed raise rates sooner rather than later. Over valuation + rising rates is a deadly combination. However it is still a bull market, and I still have some stocks, but also a lot of cash. I made decent money over the last 5 years and plan to keep it. I don't have to try and squeeze every last nickel out of a bull market. I think I'll wait for shock and awe before I start to deploy all the cash.


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## lonewolf (Jun 12, 2012)

Thanks Pluto

I need to get historical daily data, I can find the data on a daily basis but cant find a recorded history of the data based on daily ratio of advance/decline


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## DmDave (Dec 1, 2014)

Pluto said:


> Sorry DmDave, your analysis here is completely flawed. Your premise and prediction is: jobs point to expanding economy, therefore stocks will go up.
> Do you have a reference for that? Do you have any historical data that proves or indicates that low unemployment means stocks will go up?
> August 1987 unemployment was low, the economy was expanding, the Dow p/e was about 16, and stocks fell 40%
> Year 2000 unemployment was low, and stock indexes fell for about 2 years.
> ...


The three instances that you pointed out are all market crash that weren't foreseeable to begin with. They were Black Swan events. When jobs are available again and firms are hiring again, it's a good indicator that the general mood is more confident. Again, a job is better than no job at all. People will spend more as the mood picks up and as disposable income increases. As the economy picks up in the States, people shouldn't be scare of the market for being frothy. 

As for no one can predict the future, that's true for everyone. My point is that how can anyone be so sure that we're at market top now? If you're saying market is at the top, then you should sell your stocks, or better yet, short them. There will always a counterparty who'll gladly buy them from you when you sell or short. The counterparty could be anyone from your friendly mom-n-pop retail investor, but more likely you'd be dealing with the likes of Goldman Sachs, JP Morgan, hedge fund managers, or even supercomputer running on algorithms. Their views will surely be different and completely opposite from yours, you have to ask yourself what knowledge you have that makes you privy to trade better than the counterparty. Since we cannot even predict what will happen 30 minutes out, what makes people so confident that the market is at its top and a drop/crash is imminent? Another thing is people use the numbers of record closes to justify the market is at its top. Everyone things the market is bubbly because of all the record highs, but does anyone stop and think that maybe, just maybe, companies are doing so well over the last 5 years raking in profits that they're worth a lot more than 5 years ago, and stocks are just following company earnings?

I'm not here to say that the market will go higher anytime soon, nor am I confident enough to predict that it'll happen within a certain time frame. What I'm implying is that over the last 100 years or so, stock markets are continuously marching forward due to human ingenuity, production and inflation. Since the market is likely to go up than down (2/3 of time goes up according to a study by Vanguard), it's better to stick your money into the market and ride the volatility, rather than jumping in and out of it. 

Imagine the frustration of people who jumped out of the US market when the debt ceiling crisis was happening back in 2011. The market recovered soon after and now it's 78% higher, even before dividend.


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## geoffh (Nov 15, 2014)

DmDave said:


> The three instances that you pointed out are all market crash that weren't foreseeable to begin with. They were Black Swan events. When jobs are available again and firms are hiring again, it's a good indicator that the general mood is more confident. Again, a job is better than no job at all. People will spend more as the mood picks up and as disposable income increases. As the economy picks up in the States, people shouldn't be scare of the market for being frothy.


The whole "black swan" thing is a bit of a cop-out. This is a bastardized term. A real black-swan event is something that has an extremely low probability of occurring, cannot be reasonably predicted and has a large impact on historical events. It's, in Don Rumsfeld speak, an "unknown unknown." I might give you the 1987 crash as black swan since all of the option volatility models had to be rewritten as a result of the magnitude of the move. 2000 and 2007 were definitely not black swans; there were tons of people predicting both of those bear markets. On the other hand, no one was expecting a 10+ standard deviation move in the S&P in '87 or the attacks on 9/11. 

DmDave: you seem like a well-meaning guy, but you really don't have the facts on your side. There is a substantial amount of literature on zero to a negative correlation between GDP (or unemployment) and forward equity returns. For a quick, non-academic look, check this out.


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## dogcom (May 23, 2009)

2000 was an easy prediction with the dot com bubble and PE ratios sky high at the time almost every value investor was expecting it. 2007 bear market was expected but I don't think many predicted the extent of it or the damage to the good solid companies with value at the time. Of course some did but most did not.


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## lonewolf (Jun 12, 2012)

Self sabotage or blind sided not sure which one has taken more prisoners ?


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## Pluto (Sep 12, 2013)

DmDave,

Do you have any reference, an article perhaps, that shows that when unemployment is low, stocks will go up, and when unemployment is high, stocks will go down? did you look at historical unemployment graphs, and compare it to stock graphs? 

You are assuming I haven't sold stocks, when I have. 

I don't think in terms of predicting or foreseeing. I think in terms of probabilities. The weather report says 65% chance of rain tomorrow. The weather people aren't predicting or foreseeing, they look at the data and calculate the odds. When I see features of the market forming that are characteristic of a top I get more vigilant, and watch the price and volume action on the indexes more closely for signs of weakening. 

In '87 Zweig saw the odds were not in favour of stocks going up, so he tilted his strategy to make money on the down side. No one claimed that he foresaw exactly what would unfold in advance. He played the odds. I don't think you have studied the '87 market and you have no basis to claim it was a black swan event. 

So you too play the odds. You say 2/3 of the time markets go up. Some people want to avoid the 1/3, and maybe make some money on the down side. Some people want to sell overvalued stocks and then sit tight until good value appears. That's shy I sold my bank stocks about 3 weeks ago. I sold to someone who apparently doesn't care they are overvalued. I hope they are happy. I'll probably buy them back when they are better value and have more shares and more dividend income than I would have otherwise. 

Too, Dave, I'm not trying to tell you what to do. The Vangard thesis and strategy is not a bad one and suits many people. But just because it suits you, doesn't mean everyone has to it your way.


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## dogcom (May 23, 2009)

One stat I would like to throw at you lonewolf is the stock market always going up every decade in the year ending in 5.


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## Pluto (Sep 12, 2013)

dogcom said:


> One stat I would like to throw at you lonewolf is the stock market always going up every decade in the year ending in 5.


That will get fixed sooner or later. Besides, the calender year is just a convention invention, so there is no real connection between it and the stock market.


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## dogcom (May 23, 2009)

I agree with you pluto but it is just as relevant as every other item put on the table whether it be astrology, TA, Hindenburg omens or whatever. Lonewolf this is not to out you or anything but it is a fact like everything else.


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## Pluto (Sep 12, 2013)

Here is a recent article on the Hindenburg Omen. 

http://www.marketwatch.com/story/does-the-hindenburg-omen-mean-anything-2014-12-11?link=MW_TD

Its not one that I make a point of tracking, but it is interesting none the less especially considering its history of signals with over valuation is used to define the period to pay attention to. In that case, the HO triggered before a 36% drop in '87, just before a 54% drop in 2000, and in 07 just before a 58% drop. 

http://www.amateur-investor.net/Hindenburg_Omens.htm

Interest rates were rising when those signals occurred, unlike today. It might be that rising rates also needs to be considered before the HO gives a valid signal. Even so, it makes me cautious. 

So dogcom, I get the fact that you don't like or rely on any of these indicators, but I don't get the fact that you never give references to back up your claims.


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## lonewolf (Jun 12, 2012)

dogcom said:


> One stat I would like to throw at you lonewolf is the stock market always going up every decade in the year ending in 5.


 Sunspot cycle


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## lonewolf (Jun 12, 2012)

Dogcom 

2015 - 7 = 2008
2008 - 7 = 2001
2001 - 7 = 1994
1994 - 7 = 1987
1980 - 7 = 1980

Every 7 years of late the market has not done that well. ( kinda got my eye on Martin Armstrong pi cycle date 2015.75 which he thinks will be the top in the DJI)tomorrow I am getting rid of all my seasonal longs I truly think based on statistics going back to 1896 on the DJI we are in the most dangerous times ever. 

The sun spot cycle just happened to line up with a lot of years ending in 5, Harry S Dent recently did research on the sun spot cycle & based on his scientific study his research indicated the cycle was important & it complimented his demographic cycles. It was the only other cycle he could find to add to his demographics cycle. The market usually peaks out shortly after the sun spot cycle peaks. The sunspot cycle peaks then has a lower secondary peak this sun spot cycle I think if my memory is correct was the only recorded cycle where the second peak went above the first peak. The sun spot cycle is probably past its peak. Some that have researched the decennial pattern & the sunspot pattern say the sun spot cycle has caused the decennial pattern but they are a little out of sync & the sun spot cycle is the real cycle.


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## dogcom (May 23, 2009)

Thats excellent, I would never have thought of answering that with the sunspot cycle but you do seem to have an answer for everything. My thinking is the market after forcing the EU to go all in on QE like Japan did the US will follow giving us a one last stock market charge giving us a positive 2015 and then the bottom falls out.


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## lonewolf (Jun 12, 2012)

Just bought some Dec 2016 SPX puts strike 600 for $3.50 

The crowded bet on the table is long term the market is always up with the powers that be not letting there be another market panic. I took the other side of the trade went out as far as possible Dec 2016 & purchased far out of the money puts on the SPX today $3.50.

When I made big money in the 08 sharp market decline in the stock market I purchased far out of the money puts with lots of time before exploration months before hand. Back then same thing the thinking was long term the market is always up.


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## Pluto (Sep 12, 2013)

lonewolf, I'm betting you will make money. 

Right now there is the belief that stocks are the only game in town. It has worked, to people assume it will continue to work for ever. They look at gains over the last 4 years and that proves it to them. Fat chance. 

One thing is interest rates have been so low for so long, that anyone who got tired of low interest income, cashed it in and committed to stocks has already done that. Therefore, not enough new cash to keep pushing this higher and higher. Low rates are great for stocks in the beginning, ie when rates become low. But after they have been low for years, the impact of low rates is gone. so sometime before your options expire, I believe you will have a profit, adn those sticking with the crowd, are doomed to a downsizing.


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## lonewolf (Jun 12, 2012)

As of last Friday there were 8 Hindenburg omens in a 10 day period not seen in @ least 25 years


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## supperfly17 (Apr 18, 2012)

lonewolf said:


> As of last Friday there were 8 Hindenburg omens in a 10 day period not seen in @ least 25 years


Zeppelin crash incoming.......3..2..1


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