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Ted Stamas
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Degree in business administration from Ithaca College in Ithaca, New York. Been investing over 25 years, and writing in various formats for 30 years. Primarily investing in technology, focusing on wireless sector. Trade infrequently. Twitter handle is @TedStamas
My blog:
The Ithaca Experiment
  • The Big Kill 0 comments
    Apr 2, 2010 4:08 PM
     
    The employment report for March came out this morning while the markets were closed for Good Friday. It's a good thing for me because the futures were up after a gain of roughly 160,000 jobs. If the markets had been open, I would have taken more losses, at least at the opening bell. The unemployment rate is still 9.7%, the same as it was for February. Nothing to write home about, but the bulls have the momentum, and they liked what they saw. It's easy to second guess myself with the checkered returns I've experienced by siding with the doom and gloomers with their bearish scenarios, but they just make sense to me. Nobody is hanging me out to dry. My investments are decisions I've made based on probabilities. At first blush it would appear that I may have made the wrong choices, but my enthusiasm has not been dampened by my short investments. I still believe if I'm patient, the market will turn my way.

    For instance, two weeks ago Robert Prechter was interviewed on CNBC and he went into some depth about the dividend yield for the market. If you are not familiar with the dividend yield, here is the definition supplied to us by our friends at Investopedia: "A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock." You can apply the dividend yield to an index in the exact same way you apply it to a security. To calculate this, just divide annual dividends per share by share price. According to Prechter, the dividend yield on the DOW a year ago was 4.7% and it is currently 2.6% - the third lowest reading in 100 years. The two lowest readings were in 2000 and 2007. I know that Prechter is predicting the DOW reaching 500 in the next few years in his book Conquer the Crash. Five hundred sounds a bit far fetched to me, but he gives some fairly sound statistics that we are in for a major correction.

    Author Michael Panzner who writes the blog Financial Armageddon recently posted an article about the rate of change for the DOW. Now with a name like Financial Armageddon you know he's not a bull and has a bias to the dark side, but in the last two years, he's written a couple of good books When Giants Fail and Financial Armageddon. He's got some credibility. According to his recent article: "Based on data going back 90 years, whenever the 12-month rate of change in the Dow Jones Industrial Average has exceeded 40 percent, it has generally signaled trouble ahead. In three cases, a 12-month rate of change above that level has only marked a short-term pause, after which the market traded higher. But on 11 other occasions, similarly rapid advances have been followed by notable corrections, including the collapses that followed the 1929 and dot-com era peaks, as well as the 1987 crash.". According to Panzner right now the rate of change on the DOW is hovering above 40%. To me, the probabilities are in my favor of a correction coming soon, and if the market keeps climbing higher, it just means it will have further to fall.

    Now what happens if we don't get the correction? Well, I'll be out a few bucks. However, the market cannot defy logic forever. If I were long, I'd get out while the getting is good. I'll stick with my modus operandi and wait for those jaw dropping valuations on stocks and reap big rewards. At least that's the plan for now. Nothing ventured, nothing gained.
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