Read the reversal tea leaves

What do the ‘Tea Leaves’ tell us, “The sky is falling”? No, wait, shake the glass again … “Is the sky the limit?” That is the answer we want!

If investing and trading were that simple, we could visit a reader for a few dollars and find out exactly what the future holds. Unfortunately, if you ask three readers what their sheets say, you get three totally different professional opinions. Consistency is not his strong suit.

First of all, I have never made public prophecies about the future direction of the economy or the market before and I do not intend to start now. Also, I’m not a stock market bear, I’m not a bull, I don’t have dumb buttons to hit that make all kinds of dumb noises to tell you to buy, buy, buy, and my dart board really is a dart board and not a stock picking device. I don’t think Chicken Little was a good predictor and I don’t think the world will end tomorrow. But 25 years of market observation experience tells me that there are some things that should certainly be of concern to individual investors.

Let’s filter out the widespread and sensational noise about every tick in the current market, up or down. We’ll leave that to the Talking Heads with their television cameras and a cup of tea leaves; it gives them something to do and prevents them from disturbing us. We want to focus on the big picture, the major events, and how these events are likely to affect the economy and ultimately the future direction of the market. Hopefully, you can get an idea of ​​what may be about to happen and how you can prepare.

Let’s look at some of the main factors.

For example: unemployment, foreclosures, housing market, foreclosure crisis, the dollar, the EU and gold, just to name a few.

It’s not rocket science, simple common sense says the housing market won’t improve until foreclosures are no longer a problem and foreclosures will remain a problem as long as unemployment doesn’t improve. With 25% of homeowners currently upside down on their mortgage (they owe more than the property is worth), the light at the end of the foreclosure tunnel continues to hit a large moving object with a very loud hiss.

As you may know, the mortgage crisis did not just go away. I mean, all those junk mortgages that were packaged up and handed over to the unsuspecting were not paid in full by the happy homeowners, the money is still owed; There was only a slight adjustment to the accounting method so that they now look better on paper. Let’s move on to another indicator.

With housing, mortgages and foreclosures as a backdrop, now think about the price of gold. As you know, gold has been in a tear and continues to hover around $ 1,400 per ounce. You have to ask yourself, what would cause this? Realizing that supply and demand ultimately set the current price, the obvious increase in demand for this precious metal is probably not due to your dentist having been too busy filling cavities or your jeweler planning a larger traffic during the holidays. So that really leaves only a logical conclusion. Concern for the coin, specifically the green back, and more particularly, its value. Forget the few novice traders who jump into buying gold at current prices in the hopes that the price will double overnight and get rich quick, if they don’t lose their money there, they will lose it elsewhere. It is your destiny. What worries us is the big picture. And the big picture tells us that this is not a good indicator of the economy, to say the least.

There is an old saying: “If you want the truth, follow the money.”

Aside from currency concerns, concerned investors seizing gold, or Mr. Bernanke and his proverbial helicopter distributing green endorsements to everyone but you and me, what are the insiders doing?

You know, the ones that should be ‘In the know’ and get an idea of ​​what the economy is likely to do and the effect it will have on the market, not to mention the effect it will have on the stock price of the company. I should add that I find it interesting that giant companies like Microsoft, Hewlett Packard, and others have made headlines recently by finding and hiring the best economists outside of places like Harvard. Why would they develop such a sudden interest in economics professors?

On top of that, let’s see what insiders are doing with their stocks.

Insiders, of course, are the most important officers, directors, and shareholders of a company. Those who see first-hand orders, sales, projections, etc. They are also required by law to report almost immediately to the SEC whenever they have bought or sold shares in their companies.

Well guess what? They have been on a sales frenzy. Selling the shares of their companies’ stocks at a record rate that had not been seen since early 2007. Let me remind you that this was only a few months before the Great Recession began.

Vickers Weekly Insider Report analyzes internal data each week and calculates a relationship between the number of shares these informed executives have sold that week and the number they have bought. Vickers Weekly says that over the past four decades (40 years) this ratio has averaged between 2 and 2.5 to 1. Any reading above 2.5 to 1 is an above-average selling rate for connoisseurs, and should be an eye too. -opening for the investor.

Now keep in mind that these experts were selling at a record pace in early 2007 and hold your breath before you read what this buying and selling ratio was in the second week of December 2010. 7.07 to 1. In other words, corporate insiders in general are selling more than seven shares for every one they are buying. Just to show that this is not an anomaly, just two months ago, the sell-to-buy ratio was 5.29 to 1, and it has obviously increased since then.

Another factor that the individual investor should consider when thinking about the “big picture” is bear markets. I know, nobody wants to think about the market sinking and absorbing the average 29% of the value of their investment account and then having to wait a couple of years to equalize again. But like it or not, for the last 100 years there has been a bear market on average every three and a half years (3.5). They come like clockwork, last an average of 18 months, and then leave investors waiting a couple more years for the investment account balance to return to black. Do I need to remind you that the last bear market started in 2007? You do the math.

So what should I do? I’m not suggesting you call your broker and sell yourself, and I certainly don’t want to sound like Chicken Little, it’s not my style. But I do think you should pay close attention to market indices, tighten caps, prepare for the worst, and hope for the best. When I wrote the books “Technical Analysis and Charts” and “Common Sense Investing”, this current market scenario is exactly what I wanted to prepare the individual investor for. And more importantly, how to avoid the dredging of portfolio destruction caused by market downturns. Another very important thing to remember is that your financial advisor will never tell you to sell. Protecting your investment money is your sole responsibility. So, learn about investing and know how to make your own investment decisions or keep your hard-earned money safe in the bank. It’s your choice.