Bank Failures | Retirement Investment Advisors

Tag Archive | "bank failures"

Tags: bank failures, Bernie Madoff, Credit Crisis, economy, fear, foreclosure, Great Depression, history, investing, market, Market Commentary, media, nasdaq, news, Ponzi Scheme, retirement funding, Retirement Investing, S&P 500, stock market, stocks, Swine-flu, unemployment

Swine Flu and the Reality

Posted on 29 April 2009 by Allgen Financial

If anyone has watched the news in the last six months, things would appear to be apocalyptic. Some of the main headlines you would have witnessed would be ”Credit Crisis”, “Record Foreclosures”, “Bernie Madoff – Biggest Ponzi Scheme of all Time”, “Greatest Stock Market fall since the Great Depression”, “25 Year Highs in Unemployment”, “Massive Bank Failures”, “401k’s Down 50%+” and the latest…”Swine-Flu Pandemic”. That’s enough to make a person feel like the world is coming to an end. In fact, many people are convinced we are approaching the “end of times” - there are close to 1 billion searches on Google for some variation of an “end of times” scenario. I won’t try to sugar coat what has occurred over the last year or so as the world has gone through some difficult times, but I will highlight some positives that you rarely hear in the main stream media. For starters, did you know the over the last month there was a 15 day period where the S&P 500 had it’s biggest rally since the Great Depression? In fact, since the recent low in the market the S&P 500 is up over 25% and the NASDAQ is up over 32%.

Here are some things to keep in mind as you listen to some of your family, friends and most importantly the main stream media. Media outlets gain higher ratings over panic-type news so it is only logical for them to exaggerate any story. This causes a chain reaction that develops into a negative feed-back loop. As people hear the story’s from the media of mass losses in the stock market, rising unemployment, bank failures, etc. combined with actual experiences of losses or hearing from a friend or family member of losses or hardships that they’ve experienced this will cause people to believe things are worse than they actually are. Remember that this happens on a massive scale and will create what’s called herd-like behavior. Then, after the “herd” processes all the information they will tend to do the opposite of what the “bigger”, “smarter” money does – they sell their stocks and go defensive. Unfortunately the herd is usually wrong and almost always wrong at extreme points in the history of the stock market (I would consider recent times as an extreme point). When fear is at its highest point the market usually bottoms. This phenomenon occurs because the herd acts on the present and the past and the “smart” money acts on the perceived future. The “smart” money takes advantage of the panic and of the herd by buying stocks after the panic selling, which gives the smart money the chance to buy low. The same mentality happens at market peaks, as well. When everything seems to be going great and the media continues to highlight how great the market is doing (like the tech bubble in the late 90’s), that is when the “smart” money is selling and becoming defensive and unfortunately that is when the herd is buying into stocks.

Some measurements of fear that we track have recently hit 21 year highs and even after the markets recent sharp rally fear indicators are still measuring at extremely high levels. Most would think this is a bad thing, but I’m telling you that this is a positive and a reason to believe the market could go much higher from here. On top of that the pundits in the main-stream media doubt this rally and most are saying that the market will come back down. This too, is a positive, as the herd is usually wrong at extreme points throughout history. As most of the herd has recently gone defensive, Allgen has been aggressively buying over the last month to take advantage of the recent rally and the high potential for future gains. History has shown that the biggest market rallies follow the biggest market drops; unfortunately the herd is usually late to the party and won’t participate in the majority of the gains.

Going forward our advice is to be skeptical of what the media is saying and what the herd is doing especially at extreme points in time. History shows that you’re usually better off doing the opposite of what the herd does.

Written By:
Jason Martin, CMT & CFP
Chief Investment Officer
Allgen Financial Services, Inc.

Bookmark & Share This Post

Comments (0)

Tags: bank failures, Bank of America, Bio-Techs, bull market, DJIA, Dow Jones Industrial Average, economy, financial market, job report, jobs, Market Commentary, nasdaq, sectors, Semi-Conductors, Software

High Volume Reversal Day in the Stock Market 02-05-09

Posted on 05 February 2009 by Allgen Financial

Before the market opened today there was a very weak jobs report. The market initially reacted negatively to this report and to the fear of more potential bank failures. Bank of America at one point of the morning got as low as $3.77, down almost 20%! The Dow Jones Industrial Average had broken below support and it appeared that the market was ready to go into a new freefall that could of lead to huge losses. But, at around 10:30am the market decided it had gone down low enough and the market began to reverse and head higher. By the end of the day the market had rallied about 3% from it’s lows to post a decent gain on high volume. And Bank of America rallied approximately 30% from it’s lows to close up around 6% on the day. Psychologically if the market rallies on bad news it is considered positively constructive action. Because it means the market is looking forward to potential improvements while at the same time shrugging off or discounting current economic bad news. It is important to know that the market leads the economy and almost always starts to go into a new bull market before the economy improves.

The NASDAQ (pictured below) was the clear leader today. It posted the highest volume day in nearly 2 months which adds validity to today’s move. From a longer-term point of view the NASDAQ along with the other major U.S. indices have formed a potential upside-down Head & Shoulders pattern. The significance of this pattern is if the NASDAQ is able to close above the blue downward sloping trend-line that is drawn in this picture at around the level of 1600 that would significantly improve the NASDAQ and the other markets probability of a reversal in the current down trend. Some individual sectors like the Bio-Techs, Semi-Conductors and Software indices have already broken above this reversal pattern. These sectors are providing something the market has lacked for a long time…Leadership! Today’s action does not eliminate the possibility for further downside moves; it simply means that it was one positive day and a step in the right direction.