Ross Aldridge Las Vegas, RAC, initiated a comprehensive analysis of certain common and preferred stocks that were have held during the 2007-2013 stock market time frame. The Fibonacci Sequence was involved with this review. In the normal market analysis, the percentages derived from the Fibonacci Sequence are 61.8%, 38.2% (100%-61.8%) and 50%. A fundamental adjustment of extraneous circumstances must be considered into the equation. These adjustments are inclusive of the analysis but this is not a normal market cycle.
An interesting correlation was apparent with our chart overlays that utilized the Fibonacci Sequence to determine head and shoulder stock patterns. As a foot note, a constant correlation for the chart patterns were magnified by the increased synthetic Collateralized Debt Obligations, (CDO), during peak market highs. In addition to the elevated CDOs being offered by the major fund manager during the early 2007 the Federal Reserve elected to maintain a lower interest rate that fueled the projected yields offered to the their investors. As Warren Buffet has been quoted, "be greedy when people are fearful and be fearful when people are greedy". The current parallel of CDOs that are being initiated as financial instruments of mass destruction are devised by the same type of greedy fund managers that were promoted, bonded and AAA rated by Moody's, Finch and Standard and Poor's throughout the world investment community. In association with the new dress on an old pig CDOs presentation, the Federal Reserve is in the reversal of their Quantitative Easing program. Adding insult to injury, the Wall Street Journal released that the Federal Regulators were being sued for alleged malfeasance. These extraneous factors along with the occasional flash crash from either high frequency traders or "software flaws", seem to make the current trading of stocks like catching a knife on the way down.
The apparent conclusion in rising interest rates, bond yield adjustments, abundant corporate cash reserves due to an inflated market is the necessity for more lending to the lower tiered consumer. Our investment thesis will be directed to find hard asset back securities that can withstand the scrutiny of proper due diligence in order to obtain the necessary rating as investment grade. Consideration should be given to the sub prime housing, titled consumer and commercial equipment securitization platforms. It was not these types of Asset Backed Securities that created the Financial Crises of 2007-2009. It was the exotic derivatives and the fund manages ability to bet against his own companies product.
As 40 percent of the modern worlds consumers have, according to the Experian, Equifax and Transunion, negative or the "other side of perfect credit", we feel it is imperative to invest in the stocks that will have the trickle up effect and slow the projected stock market reversal. This challenge will be an uphill climb with lackluster employment, HARP delays, Sequestering, QE termination to list a few.
These cycles can be identified on about the same consistence as the emergence of the cicadas, so to speak; however, the impending higher interest rates will dictate the commercial and consumer lending regularity. Higher rates with usury ceilings will be advantages to the expedient closure of our current economical cycle.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.