What technical analysis says for the stock market?

While this outlook is negative, I want to emphasize that there are thousands of overlooked and undervalued stocks in North America that offer exceptional opportunities for substantial capital gains. My technical and cyclical analysis suggests that the overall stock market faces more downside. As usual, excuses will be made and finger pointing will ensue.  

While the normal and beneficial technical downsides (which permit investors to buy at more reasonable price levels) over the last three years did not occur due to zero interest rates and central banks’ “support activities” in the stock market , it allowed for the abnormal upside excesses in some stocks that twice in the last fifteen years have led to market disasters that the public has not forgotten. “When is the public coming back in?” asked a television host recently; the answer is perhaps not until things change dramatically. The public has lost faith in much of the investment industry.

You may wonder why technical analysis gets such little support at the large U.S. brokerage houses. Despite the fact that technical analysis is an extremely valuable method for successful investing as it indicates when stocks are overvalued and should be sold or simply not bought; it is given scant attention by many brokerage houses. The reason is that it impedes and limits the business that is required (desperately needed) in some large brokerage houses.

Fundamental analysts at the brokerages do not enjoy seeing their prime recommendations facing sell advice from the firms’ technicians or worse yet advice to “avoid” a recommendation or to consider investment at lower prices.

Thus, technical analysis can limit business and stock upsides which also may hurt the profitability of brokerage trading desks BUT IT CAN BRING ABOUT MUCH MORE EFFECTIVE AND PROFITABLE INVESTING. There is not one successful trading fund or hedge fund that does not utilize technical analysis-it is that important. Where accuracy is vital such as for successful hedge funds, it is not important for the brokerage houses. That is one of many reasons investors don’t see technical analysis reports with the same high visibility that they saw in the past issued from the brokerage houses. Maybe it interferes with business?

  You will notice that after large percentage moves up in stocks within short periods of time, they have a tendency (actually likelihood) to be followed by large percentage declines.  Technical analysis can help gauge the movements-but few pay attention to it. For example, a 30% to 140% move up in price in a stock within 15 months will normally see it lose half of its move up.   

                  Technical indicators that are rarely discussed on business television

Insider analysis is the study of the buying and selling of stocks by companies’ officers and directors. Over the last year, we have seen some of the highest level of insider selling ever. One recent week in 2015 had over $500,000,000 of officers’ and directors’ selling their own personally owned shares with little buying. Moreover, there were several weeks of approximately the same dollar amount. When this insider selling level occurred in the past, it led to market declines of over 40% , forty percent. It is rarely ever reported on business television. 

The value of all stocks traded in the U.S. has been at $23 Trillion which is approximately 140% of GDP. When this level has occurred in the past, it has also led to market declines of over 40% ! This is on occasion, mentioned on business television. 

We have further downside targets for the S&P 500 and Dow Jones Industrials. At present, I would project the Dow Jones at the 13,540 level with the S&P 500 at approximately  1560…..then we will see. Normally, we should have rallies and moves down that may take time. Look for bargains as stocks suffer severe declines, few do that.  Could I be wrong? Yes, of course!

                                                    Ominous Cycles?                                                                       Nothing has to happen but some historic cycles suggest that we are entering a long term bear market in industrial stocks and a positive market in most commodities. And yes, gold looks quite positive in its cyclical history. Gold and Silver investors should be well rewarded; that is not beneficial for the industrial stock markets.