Stock Market Expectations Still Building!

Posted on April 26, 2012 by Lou

On April 18, 2012 the stock market’s expectations passed into “High Expectations” territory thereby triggering a bear market bias.

Although on a typical expectations cycle we would see the “Expectation Indicator” peak in “High expectations” then retreat immediately afterwards, but since this is the first “High Expectations” triggered since the long term bear market was marked in September of 2011, expectations are continuing to build to record highs.

As long as expectations are building, the stock market is unable to change direction. We should expect expectations to peak in the very near term future and then turn negative.

To learn how to create and track the “Expectations Indicator”, please read “The Art of Expectations“.

Expectations Change from Low to High – Bear Market Triggered

Posted on April 18, 2012 by Lou

On April 18, 2012 the “Expectations Indicator” triggered High Expectations. When expectations change from low to high we could expect the stock market to become bearish.

Since the Expectations Indicator also triggered a longer-term bear market in September 2011, we also could expect this bear move to be more volatile and carry much more volume with it then the market has experienced lately.

To learn more about the Expectations Indicator and how expectations affect the stock market, please read The Art of Expectations.

Not the Start of a Bear Market Move Yet – Just a Correction

Posted on April 11, 2012 by Lou

Although the Expectations Indicator has triggered a Bear Market, Expectations remain low so we should interpret this downward move in the markets right now as a correction and not the start of a larger bear market move….YET.

Although this move down is a correction today, the stage is still set for a very large move down in the near future.

Typically we buy corrections in anticipation of the returning bull move.

To learn more about the Expectations Indicator and how to construct and track it read “The Art of Expectations“.

Market Expectations – A Cruel Fact of Life

Posted on March 9, 2012 by Lou

Most times when we get what we want the most it turns out to not be what we expected at all. Some call this a fact of life and others call it a cruelty of life. Either way we can say that nothing really turns out how we expect it to be.

The stock market currently has Low Expectations (as determined by the Expectations Indicator) and it has been reflected in its actions of late by drifting higher. The market also is in a bear market cycle, which can be seen with the light volume which time has told us that volume confirms movement in stocks.

So where does that leave us now? The market needs to move towards raising expectations to reflect its current level. Wall Street must convert their economic optimism into higher expectations. It is not a matter of if but rather when this will occur and when it does the market will decline. The right side of the shoulder is forming.

To learn how to track the stock Markets Expectations read The Art of Expectations.

Lowest Market Expectations Ever Recorded!

Posted on January 30, 2012 by Lou

A change in the tide typically brings unpredictable and volatile waters. The same holds true in market expectations. The Expectations Indicator signaled a bear market on September 16th, 2011 and since this signaled change in tide, expectations have been pushing lower and lower.

The Expectations Indicator is still young in its development, but its results have shed light on this volatile market. Currently the market is transitioning from one direction to another (bull market to bear market).

It is difficult to let go of “the way it was” and transition to the new “way”. It is very human to go through stages of acceptance to accept this new “way”.

The market ultimately has to raise its expectations to match current market levels. Once expectations touch this high point, we should expect a large leg down in the market. Until this transition occurs, we should expect the market to have resilience and a slow upward trend, but lack volume due to the bear market prognosis.

Current Expectations – Low Expectations in a Bear Market

Posted on January 15, 2012 by Lou

The Expectations Indicator signaled a Bear Market on September 16th, 2011. The Expectations Indicator signaled Low Expectations on October 3rd 2011 . The market is experiencing a Bull move within a Bear Market. Since October 3rd the expectations indicator has signaled Low expectations several times. Multiple low expectations signals are the result of moving from a long term Bull Market to a Bear Market. We should see a large bear move in the market once expectations are signaled for the first time in this newly transitioned Bear Market.

To learn more about how to create and track the Expectations Indicator read The Art of Expectations. What determines a transition from a long term Bull Market to Bear Market and vice versa is revealed in Trading Expectations which is coming soon!

The Right Shoulder in Bear Stock Market

Posted on January 3, 2012 by Lou

Although the Expectations Indicator has signaled a Bear Market, it has also shown that expectations are low and therefore giving the market the momentum it needs to form the right shoulder to a “head and shoulders” chart pattern forming on the Dow Jones Industrial Average.

It is important to understand that the stock market can go up in a bear market and down in a bull. What determines overall market direction is higher highs in a Bull Market or lower lows in a Bear Market. The Expectations Indicator triggered low expectations, but also in doing so signaled a long term Bear Market.

The Expectations Indicator measures the market’s expectations on future conditions. If expectations are low then the market is more inclined to go up since it is not expecting much and the margin of error is large. If expectations are high then the market expects too much and the margin of error is small making the primary market direction down.

What makes the Expectations Indicator so special is its objective and definitive readings that takes emotion out of the process. To learn how to track market expectations read “The Art of Expectations”.

The following is a monthly chart of the Dow Jones Industrial Average with the “Neckline” noted. To learn more about the “Head and Shoulders” chart pattern click here.

What is “The Art of Expectations” About?

Posted on November 13, 2011 by Lou

The world was flat until Christopher Columbus sailed to America, changing the perspective of the shape of the world. In 1902 flying was only for the birds until in 1903 the Wright brothers changed that prospective.

Innovation is not the invention something new, but rather a new perspective. Most of the world we live in is viewed one dimensionally. We only see what we have been conditioned to see by societies perspective. A sailor before 1492 looked at the horizon and saw the end of the world, where as today we understand that the earth is a round, so the horizon is just reflecting the curvature of the earth. Perspective changes everything.

“The Art of Expectations” is a new perspective on the way we see human actions. As with Einstein’s theory of relativity where all actions have a similar reaction, so do our emotions. These emotions are controlled by expectations that cycle from one extreme to the other.

“The Art of Expectations” shows us how we cycle from high expectations to low and repeat the process through our entire lives thereby controlling our actions. Because we cycle from one extreme to another, our actions become predictable. It is at these extreme highs and lows where change in our lives lies.

Why does the Stock Market go Up and Down?

The simple answer is, market expectations. Wall Street wants us to believe that the stock market is a complicated economic forecaster, when in fact it is just a barometer of a group’s expectation.

When a group’s expectations are falling so does the markets value. When expectations are rising the market’s value is also rising. Change occurs at the extreme high or low in expectations. As with individual expectations, groups have expectations limits where conditions cannot get any worse or better.

You will learn three things in “The Art of Expectations”

1. How Expectations influence our decisions and shape our world and the world around us.
2. How to use expectation cycles to predict outcomes.
3. How to construct and track the NEW Stock Market Expectations Indicator.

Expectations make sense of the stock market’s movements and our own actions.

Signs of Group Mentality

Posted on November 12, 2011 by Lou

An Individual in a crowd is a grain of sand amid other grains of sand, which the wind stirs up at will.
Gustave Le Bon – The Crowd 1896

“Hind sight is twenty-twenty” a phrase that best describes someone who has group remorse. Group remorse is the way we feel when we realize what we have done. It is always the same, “what was I thinking”. The fact is we weren’t thinking and it is who we are and we will do it again.

We can never truly avoid being lured into to do the bidding of a group, but what we can do is identify some signs of group mentality.

The following are some signs of group mentality:

1. Invincibility – When we are part of a group, we feel our actions have no consequence. We no longer have foresight. Foresight is a uniquely human trait that separates us from herding animals. To be able to see consequence is what prevents us from following the herd over a cliff. But when we are members of a group we become apart of the herd and we will follow it to the end without sight of the consequence. Groups take away our humanity.

2. Contagion – Groups spread like a wild fire. They infect towns, cities, states and continents. Signs of contagion are primarily seen in the mass media. Contagion is the fad that has people camp out in front of a store for days to buy a new electronic device. Contagion is what makes people pay twice the retail price of a game system instead of patiently waiting. Contagion in history is remembered as the madness of the crowd.

3. Hypnotic Spell – A simple question with no answer “Why”. When we are under the hypnotic spell of a group, the question, “Why?” has no logical answer. This inability to understand why we are doing something is what leads us to group remorse. Wars and modern marvels are created under hypnotic spells.

The most important aspect of any group action lies in its natural limit. If soldiers are asked to march 50 miles and they are only humanly capable of going 45 miles, then they will collapse at the 45-mile mark and never reach the battle. Groups always attempt to push beyond their natural limits and this is where we see change.

Groups primarily move markets and to understand their natural limits would put us at an advantage in understanding when it cannot get any better (bear market) or any worse (bull market). These natural limits and ways to identify and track them are discussed at length in “The Art of Expectations”

Stock Market and the Economy – Must Reads!

Posted on November 11, 2011 by Lou

If we have an interest in what is happening today in the stock market and our economy, then these books should be on the top of our reading list:

1. Americas Great Depression by Murray N. Rothbard. Written in 1963, Murray N. Rothbard disputes the belief that Herbert Hoover and the Federal Reserve of the time did not do enough to stay off the depression. In “Americas Great Depression”, Rothbard chronicles the actions taken by the government to stay off the impending Depression. What makes this book so interesting is how similar Herbert Hoover’s actions are to the current government playbook. This book made me start to question of whether the credit market or government intervention caused the Great Depression.

2. The Dow Theory by Robert Rhea. Published in 1932, Robert Rhea organized and summarized Charles Dow’s theory from his editorials in the Wall Street Journal. Charles Dow never applied his theory to interpret the stock market. William Hamilton successfully implemented the Dow theory and predicting markets with great accuracy for decades until his sudden death only months before the 1929 crash, which he also forecasted. Robert Rhea used many quotes and references from William Hamilton’s book “The Stock Market Barometer” printed in 1922. “The Dow Theory” simplifies market cycles and lets us understand what really drives market and economic forces. Today the moving parts may be different but the logic is enlightening.

3. How to Trade Stocks by Jessie Livermore. Printed in 1940, Jessie Livermore detailed his method of trading stocks that made him one of, if not the best, trader in the 1930’s. His method of trading stocks is not what makes this book so special, it’s his subtle comments about the “way it used to be”. The markets changed so much from the “traders market” of the 1930s that he actually committed suicide very shortly after the book was printed. Jessie Livermore’s method of trading no longer worked when he wrote this book because markets where so much smaller.

Just a couple of the many shoulders I stood on to write “The Art of Expectations“.