Monthly Archives: July 2007

Sealed the Deal

-In our July 16th report titled Hello and Goodbye to DOW 14,000,” our opening line highlighted in red said, “we are more convinced than ever before that we are about to drop like a stone starting next week.” Also, in our July 23rd report we said, “I want to reiterate that the BAM model has a current set-up calling for a tremendous straight-line decline.  The reason I’ve been so adamant about the nature of this decline off the top (straight-line as opposed to a rounding top) is that never before in my work have I seen such a large number of sell signals (in a variety of time frame models) all ready to trigger simultaneously.  A straight-line decline is very rare coming directly off a new all-time high but that’s exactly what I’m calling for.  (Look back at the February decline and double it in brutality if you want to get an idea of what I’m expecting to kick off this bear trend.)”

Full report coming soon

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Financial Crisis Dead Ahead

-The BAM model is showing a very good probability that, during the next 8 months or so, we could give-back all of the gains made since the August 2004 lows.. in the case of the INDU and SPX, we’re talking about the 9700 and 1060 level respectively. 

-The massive amount of easy money that’s been fueling private equity deals is obviously generating tons of revenue for certain players in the XBD.  Why then–even prior to the Bear Sterns hedge fund blow-ups—is the XBD lagging the general market?  Not a day goes by that I don’t hear someone talking about how “undervalued” the financials are yet they’re leading us down as they break to fresh lows ahead of the general averages.  The XBD, in our work, looks as bad up here as the HGX index looked at its summer peak in 2005.  Back then, we called for a multi-year collapse in the HGX even though the analysts were talking about a bright future (and moving estimates higher) and now we’re calling for a multi-year collapse in the XBD even though they’re (analysts)  calling for a continuation in large fees generated by private equity deals and a booming stock market.

Full report coming soon

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Hello and Goodbye to DOW 14,000

“We are more convinced than ever before that we are about to drop like a stone starting next week.” 

EPIC Sell-Signal Cluster 

“Getting back to stocks, I want to reiterate that the BAM model has a current set-up calling for a tremendous straight-line decline.  The reason I’ve been so adamant about the nature of this decline off the top (straight-line as opposed to a rounding top) is that never before in my work have I seen such a large number of sell signals (in a variety of time frame models) all ready to trigger simultaneously.  A straight-line decline is very rare coming directly off a new all-time high but that’s exactly what I’m calling for.  (Look back at the February decline and double it in brutality if you want to get an idea of what I’m expecting to kick off this bear trend.) 

I believe one of the best attributes of the BAM Model is its ability to highlight periods during which dynamic price spikes—both up and down—are likely to unfold.  The absolute movement of marketswhether we’re talking about stocks, bonds, or crude oil and wheat–seems to me to be much less dangerous to bulls or bears (caught on the wrong side) than the actual velocity of price movement.  Slow moving markets, no matter how extreme the absolute price move, somehow allow funds the ability to adjust hedges accordingly in order to avert disasters.  But when violent moves throw volatility out of the parameters of their comfort bands, all hell seems to break loose.  I have no idea if the quant models are feeding the portfolio managers certain price velocity parameters based on historical studies, but my money says they’ve got it wrong again and that some heavy-footed hot-shot (in addition to Bear Sterns) is about to wrap their portfolio around a tree.” 

NOTE:  The stock market topped the following day on July 17 with an intraday high of 14,021.95 and after holding fairly steady that week, plunged to 13,265 the next week as forecasted (a 756 pt free-fall).  After a mini-bounce, a second even more severe free-fall took place down to the 12,517 level at which point the FOMC stepped in and stopped the crash. Quant funds were blamed for the sharp “unexpected” sell-off as the INDU declined 1500 pts over 23 sessions for a 12% decline off the BAM model’s sell signal high.

Full report coming soon

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Throwing Good Money After Bad

“One of the most followed rules of investing is to cut losses quickly and to let your winners run.  Another even more important rule is to not exacerbate your problems by throwing good money after bad in an attempt to bail yourself out of a losing position.  But what if you had no choice? 

What if you were holding a largely, if not completely, illiquid investment in a market that had already imploded–despite the fact that the market was unwilling or unable to reflect mark-to-market pricing reflecting the enormity of that implosion?  And what if, like a cluster of nuclear weapons daisy chained together, that investment was levered five, ten, twenty, even thirty times your original capital?  

Are They Trying to “Buy” Time? 

When Bear Sterns recently threw good money after bad, I had to wonder if they were breaking a very basic investment rule out of lack of discipline or simply executing a strategic decision based purely on necessity.  My guess is that it’s the later and I think they understand all too well the ticking time bomb they, as well as others, are sitting on.  I also think the BAM stock model will prove correct in its prediction that a decline over the coming months will send the market spinning into a black hole with investor psychology switching from optimistic to pessimistic in the blink of an eye.  Bear’s decision to do what they did only reinforces the model’s idea of a severe plunge because when they finally admit that the subprime market is not going to recover quickly enough to stave off additional margin calls, they’ll be forced to capitulate which will create a domino effect of capitulation from others trapped in similar positions.”  

NOTE: This guessed turned out to be correct as Bear was proven to be bluffing and the subprime problems subsequently crushed many other firms. 

Full report coming soon

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