The emotions of the trading crowd are always swinging from greed to fear and back again in an endless cycle. After stock prices rise for few weeks in a row, the majority of stock traders feel increasingly bullish. This is evident now: sentiment indicators have swung from Fear in October to Greed now. Stock prices bottom on Fear and top out on Greed, leading traders to sell low and buy high. That is why most traders lose money.
We have seen these swings repeatedly over the past 2 years, even though stock prices have made no net progress and still languish below their highs of January, 2022. It is far too easy to get caught up in these manic-depressive episodes. It is human nature to be swayed by the crowd, the popular narrative, the latest news and rumors. We strive to offer you an objective discipline that affords a rational perspective on the most relevant facts, so that you can conserve and grow your wealth.
Federal Reserve Chair Jerome Powell spoke at a fireside chat at Spelman College in Atlanta on Friday. He seemed pleased that the rate of inflation rate has come down and the economy so far seems to be having a soft-landing instead of a recession. The trading crowd took that as bullish, while ignoring Powell warnings, “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so."
The Fed’s monetary policy remains restrictive and the path forward is not at all clear. Data from the Federal Reserve shows that the Fed is still contracting its balance sheet and the rate of change of the money supply is still very negative. Interest rates remain high and their direction from here is uncertain.
Many banks still appear vulnerable, with large unrealized losses when assets are marked to market. Unrealized losses on securities held by US banks exploded by 22% in the third quarter.
Irresponsible government deficit spending remains out of control, exacerbating risk of inflation pressure over the long term.
Stock prices remain overvalued.
Overall risk (including war risk, which is the worst kind) remains high.
Looking under the surface of the stock market, many divergent technical trends are evident.
Caution appears warranted.
Every day, we use technical, fundamental, and quantitative analysis to judge the Reward/Risk probabilities of trend continuation or reversal. We strive to control risks and to make sure that all of our clients are safe and protected from large losses. If you want to earn reasonable returns while avoiding large losses, move your wealth to our professional fiduciary asset management. We always put our clients’ best interests first, and we are always here to help you in times of stress.
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