Predicting exact stock market future Highs and Lows has been my passion and mission, but for many it is often futile, if not impossible. As a matter of fact, over the last 12 months there has been a mass redemption of mutual funds flowing out of the market – which is not a good sign. Just don’t try and convey to people that this is a market that is similar to what it was in the 60’s and 70’s, because it is not. The big market call of major likely declines made for most of the difference in performance.
Stocks are a long term investment, and you do need to be able to withstand the rise and fall of stock prices, but in the past they have given a return that was higher than the inflation rate. Chinese stock markets tumbled again on Wednesday as investors shrugged off a series of support measures by Chinese regulators, including the central bank’s first public statement in support of the market since it cut interest rates in late June. The panic in mainland markets is rippling across the border, knocking the Hong Kong market down more than 4 percent.
Within ten minutes of trading, more than 1,000 shares across China’s two stock markets had dropped by the daily limited of 10% and had their shares automatically suspended. Christopher Balding, a professor of economics at Peking University said that while it was not possible to know exactly why so many companies had suspended trading, a large number were doing so because they had used their own stock as collateral for loans and they want to lock in the value for the collateral”. In spite of the panic selling, two global investment banks sounded a bullish note on the Chinese market.
China’s central bank stepped up state support for sinking stocks on Wednesday, as investors rushed to sell what they still could after a fresh wave of share suspensions that have now halted trading in half the market. If the Fed was truly in control, there would not have been a dot-com collapse in 2000, a housing crash in 2007, and another bubble ready to pop right now. In my last post I introduced a stock market trading strategy based on my 6 month market forecasts.
It turns out that the forecasts consistently lead the market by a couple of months, so actual trading works best not by following the most current forecast, but by using a lagged forecast that weights forecasts from a few prior months. In particular, the forecasts of 2008 through early 2009 screamed of likely 6 month market losses of 17% or mort months before the crash took place. In the stock crash of 2007-2009 the S&P 500 took a big hit, but overall for the period the average has had a 4% annualized rate of growth. The strategy using the 6 month stock market forecasts, however, had an annualized growth rate of 14%, roughly 3 times better.