Oil Production - The Start of a New Analysis

According to the New York Times, here are the top oil producers based on barrels per day:

Saudi Arabia - 10.7 million barrels
Russia - 9.7 million barrels
United States - 8.4 million barrels
Iran - 4.1 million barrels
China - 3.9 million barrels
Mexico - 3.7 million barrels
Canada - 3.3 million barrels
United Arab Emirates - 2.9 million barrels
Venezuela - 2.8 million barrels
Norway - 2.8 million barrels

Tomorrow, we'll look at oil consumption. (It's that supply-demand thing again...)

Arrogance? Hubris? Insanity? ... or Just Plain Stupid?

Sometimes you have to laugh. Either the CEOs are just plain arrogant or they have determined the average walking-around Joe is just plain stupid.

Morgan Stanley reported a stunning fourth-quarter loss fueled by $9.4 billion of losses in subprime mortgages and other assets. The CEO John Mack did not step down, but said he would just skip his yearly bonus. Wow. Is that generous, or what?! Arrogance? Perhaps.

I guess he will have to live off his $37M he made last year. Plus, he had to sell 10% of the company to the Chinese to shore up the capital, and they're paying almost 10% interest on that!

So, what was his answer to all of this? "The results we announced today are embarassing for me." This was Mack's response to a conference all of the investment bank's first quarterly loss in its 72-year history.

So, what are the shareholders going to do about all this? Nothing. Not a thing.

No Time to Get Emotional!

It's time to become conservative. We need to raise cash levels. We need to raise stops. We need to pull back. We need to buy strong RS stocks. We need to buy 1/2 positions. We need to buy ETF instead of stocks.

We need to put emotions aside and look at the supply-demand charts.

Most importantly, if a stock hits a stop loss and there is a loss -- take it. A small loss is much easier to make up than a large loss.

Going Green - Capital Conservation

What do all the present indicators in the Market tell us? They tell us the Market is at its highest risk level. It means instead of being in the wealth-grow mode, you are moving into the wealth-conservation mode.

It is time to conserve capital because it is very easy to lose at this point. It doesn't tell us how deep or how long a correction the Market will require. Nobody can predict that. The charts and supply-demand lines will tell you when it's over, but it cannot predict that ahead of time.

So, we don't know how long the correction will be or deep it will be? What do we need to do?

Go green! Conserve capital!

What else? Stay tuned...

Summarizing the Signs

To summarize, there are some very strong signs that there may be a recession on the horizon. The bond market traditionally sees that ahead of time, although not always. The stock market will react to it ahead of time, most of the time.

Tread carefully in both the bond and stock markets.

Tomorrow we get back to technicals. Things are changing and so must the approach to investing...

The Second Sign

The second major sign of an impending recession comes from the bond market. It is called an "inverted yield curve." It is one of the oldest omens of a bond market recession. This is a longer-term recession signal.

The yield curve of US Government bonds inverted late last year and remained out of kilter well into the first half of 2007. Usually, long-term rates are higher than short-term rates. In this scenario, the opposite is true.

Every recession in the past 50 years has been preceded by an inverted yield curve. But remember -- not every inverted yield curve preceded a recession.

So, what other signs are there? Stay tuned...

The TED Spread

The bond market is now showing the first major sign of an impending recession. It is called the TED Spread. It is a short-term indicator.

TED Spread is the Treasury-EuroDollar Spread. It measures the difference between the 3-month yields on both the bills. It increases during economic or financial crises.

The TED Spread is currently above 210 basis points, which is particularly high and reflects reluctance among banks to lend money to each other. This could choke the economy and lead to recession.

Tomorrow... the second sign...

Warning! Your Economy is Receding!

It's time to take a break from technical analysis. The Market is getting hit really hard. So, let's talk about something that's not quite so bad--recession.

That's right. I said "recession."

Are we entering a recession? Maybe. Most of the time, the majority of economists and the government don't know we are in a recession until after they declare we are out of a recession or until they announce how we are pulling up out of a recession.

A recession is traditionally defined by two consecutive quarters of economic contraction.

There are two major warning signals flashing right now that show we may be headed for recession. Stay tuned to find out what they are...

Rates Down... Market... Where?

Well, the Federal Reserve lowered interest rates by 1/4 point this week. They also lowered the discount rate 1/4 point. But it doesn't take a technical analyst or a fundamental analyst or even a trained monkey to figure out the market didn't like it.

The Dow was down 300. The NASDAQ was down 70. Even the S&P dropped. Ouch!

But what caused it? There are many reasons. The country will now go into a recession. Bernake has no control over the Fed. Bernake has no idea how bad things are. Banks will go under. Consumers will spend less. Banks will horde cash.

So, what's the bottom line? Stay tuned to find out...

Name Calling and Other Ugly Habits

Yesterday, we talked about the myriad new designations for the various workers in the financial industry. Apparently, a lot of complaints have been made against brokers who hold these titles.

FINRA is now compiling records against advisors who hold these new titles to see if any patterns exist. They are trying discover whether brokers use these titles as mere marketing tools designed to dazzle investors or whether the titles have any real educational value. Many of these titles come with training courses that show advisors how to sell to the various markets. With so many new titles out there (on top of the old ones), it is hard to tell what is credible and what isn't.

Regulators found the advisors using more than fifty different designations with a definite leaning toward the senior and retirement markets.

It remains to be seen what limitations FINRA will place on these new titles, but until you have a genuine idea of the education, background, and track record for an investment advisor, ask questions. Ask more questions. And, when you get the answers to those questions, ask more. It's your money and your responsibility to make sure the person you are entrusting it to is qualified to manage it for you.

Did I mention you should ask questions?

You're a WHAT?!!

Stock Broker. Financial Advisor. Registered Investment Advisor. Vice President of Investments. Certified Financial Advisor. What?!

Give me a break!

Seriously, though. These are all titles you find throughout the investment industry. But, because that bunch of titles wasn't descriptive enough, new ones are cropping up:

• Chartered Retirement Planning Counselor;
  
• Certified Senior Advisor;
  
• Chartered Advisor for Senior Living--huh?
  

According to Susan Merrill, FINRA's Employment Chief (legitimate title), they are going to evaluate these new designations. FINRA is the enforcement arm of the NYSE and the NASD.

Tomorrow, we'll find out why they're going to evaluate these new designations.

Goldman Sachs and the Crystal Ball

Abby Joseph Cohen is the chief investment strategist at Goldman Sachs. By all accounts, she is a very smart person. She takes in information and determines how the economy is doing at a particular point in time. She figures out how the Market is doing at a particular point in time. She even figures out the short-term prospects for the Market.

But, it smacks of a carnival sideshow trailer with a crystal ball and velvet curtains when Ms. Cohen tries to predict where the Market will be in a year from now. She cannot possibly know. It changes from week to week and can mislead investors.

And how can I be sure of that? Three weeks ago Ms. Cohen claimed the S&P to be at 1680 by year-end after claiming earlier than it would reach 1680 by the end of the summer. Now, it's at 1480 as I write this. Oops.

Tomorrow - BIG CHANGES! Get ready!

Dow Jones Gets It Right!

Thank you Dow Jones! At last, someone finally got it right. Not Bloomberg. Not the local news. Not the talking heads. But Dow Jones got it right. They are the only ones who actually said that this latest shift is the second major correction this year of 10% or more.

So, how hard was that?!

And, talking about wow. Did you see the Market on Thursday? It was up huge! The S&P, NASDAQ, small cap, midcap. Just about everything was up. So... let's run right out and buy! Wrong!

One day does not make a market. Some of the largest up days occur in bear markets. That's what's known as a "bear trap." I'm not saying the Market isn't ready to reverse up, but I'm saying the technicals are still saying it's a high risk Market that requires care and consideration.

I believe we are probably on the brink of the reversal up, but step lightly until the Market and the technicals get the message.

They Think We're Stupid

Sometimes I think I am the only one out here who thinks for myself!

People, you cannot believe anything you read. Yesterday, in Bloomberg, there was a headline under "Breaking News" that said:

Nov. 27 (Bloomberg) -- US stocks climbed, rebounding from the market's first 10 percent drop in four years, after Citigroup, Inc. said it will receive a $7.5 billion cash infusion from Abu Dhabi's government. ...

They repeat the information in the body of their article because telling a lie once is not enough.

Do they think we have forgotten the major correction this past summer? Are they ignorant? Do they think we are? Perhaps, they're just trying to capture headlines and readers. Or, just maybe, they're just plain lying to everyone.

On July 16, 2007, the S&P reached 1555 and, on August 16, 2007, it went as low as 1370. That, my friends, is a drop of 185 points or 11.9%.

The last I checked, 11.9 is greater than 10.

Of course, I'm just a bunny and we are known for multiplication, but it is simple math...

Portfolio Annihilation!

In yet another dazzling display of grasping the insanely obvious, the talking heads and "experts" bring you the news for the day (which we simply had to publish for reasons that will become instantly clear):

UBS Securites Cuts Their Ratings on Fannie Mae and
Freddie Mac Stocks From Buy to Hold

And they lowered price targets on Fannie Mae from 88 to 31 and on Freddie Mac from 87 to 28, this according to Reuters news, today Nov. 26, 2007.

On what planet have they been living? Fannie Mae has already dropped from $69 a share on Oct 4 to as low as $26 a few days ago! Freddie Mac has dropped from $64 to $24 in the same time period. And now this "expert" tells us to hold the stock? What a moron!

Technical analysis would have told you to sell Fannie Mae at many points, the final being $59, and Freddie Mac the final being $55. But they would have you hold it now at $26 and $24 respectively?

Portfolio Bunny advises you to use technical analysis or find a financial advisor who uses it. This is only one instance where a single stock could destroy a portfolio. Don't fall prey to talking heads and "experts."

This has been a live report from Portfolio Bunny... we now return you to your regularly scheduled blog.

Market... Going Down!

Well, I don't have to tell you the Market has been going down significantly over the past six weeks. The technicals told us so. But, as of now, the short-term technicals are in the washed-out levels and we will be looking for them to reverse up. When the technicals reverse up, that will be the time to look at putting money back into the Market.

The longer-term technical indicators, all three of them, are still reversing down. The OTC indicator is actually below 30%, which is in the washed-out area. It is the first time that has happened since 2002!

Keep your ears up and your eyes open. Opportunities will soon begin presenting themselves!

Stop Losses

When the relative strength of a stock or fund goes negative or a major support level is violated, sometimes the fundamental reason for it isn't known until much later.

Don't worry about the WHY. The reasons are not relevant. Sell the position. Raise cash. As we all know--stock can go down. Stock can go way down. Stock can go all the way to zero!

Country Credit violated its support line at $33 back in early April. Today, the stock is trading at $14.

Don't be the last one out with nothing left. Use technical analysis to determine your stop losses and keep emotions out of it.

All the hype making you hyper?

This is not the time to get caught up in the hype of news stories and CNBC nonsense.

Take a step back. Look at your portfolio in an organized way. Determine what supply-demand relationships are in all the positions in your account. Do this without emotion. Do it in a logical way. See what your results are. For a moment, forget the names of your stocks. Call them X and see what your results are.

Now you know what's in your portfolio and what your relationships are, next time, I'll tell you what to do with those positions...

The Bunny's Back With a Warning!

After a brief hiatus, Portfolio Bunny is back. Unfortunately, it's not to deliver good news...

There are times to invest in this market, and there are times to be careful. This is the time to be careful.

My technical indicators last week reversed down again. That is the third time this has happened this year. That's only the fourth time this has happened in the past 35 years. That means the market is at a very high risk level.

Be careful investing right now. It is time to raise cash, hedge, and watch what sector you are invested in. The wrong sector can kill your portfolio!

Predictions, Risk, and Jelly Beans

Previously, I had explained the markets had reversed up from extremely low-risk levels. In fact, those levels had not been reached since 2002.

Does that mean the market is going to go straight up? No.

Does it mean the market is going to go up? No.

Remember what I explained before, nobody can predict what the market will do. Not today. Not tomorrow.

What it does mean is that you can now put some money to work and invest it because there is very low risk in the market. In other words, the odds are in your favor that the market is now going higher.

Next time, what to invest in.

Oh, what about those jelly beans? Well, nothing really. We just really like jelly beans... especially the black ones.

Current Market Development

Well, it's been a while since our last blog and there have been a great many changes and developments in the markets...

Some of these include:

• The biggest market corrections in over 5 years, and then the markets reversing up from extremely low-risk levels.
  
• The sub-prime crisis hitting the markets which probably caused the major correction to begin with.
  
• The hedge fund crisis with the quaint funds losing billions of dollars and some of them even going bankrupt.
  
• Then, the Federal Reserve lowering interest rates.
  

And all of this in only 2 months. It's enough to make your head spin and your portfolio sink, unless you were listening to what I was saying before this happened.

Next time—we will talk in specifics instead of generalities.

What to do?!

We need to become conservative. We need to raise cash levels. We need to raise stops. We need to put on pullbacks. We need to buy strong RS stocks. We need to buy 1/2 positions. We need to buy ETF instead of stocks. We need to put our emotions aside and look at the supply-and-demand charts.

But, most of all, in this market, we need to remember that when a stock hits a stop loss and there is a loss -- we have to just take it. A small loss is much easier to make up than a large loss.

Now is the time when cooler heads prevail.

What Does High Risk Tell Us?

A high-risk indicator tells us the stock market is at its highest risk level. It means instead of being in the wealth-growing mode, the market is entering the wealth-conservation mode.

This is the time you need to conserve capital because it is very easy to lose at this point. It doesn't tell us how deep or how long a correction in the market will be. Nobody can predict that. The charts and supply-and-demand lines will tell you when the high-risk level is over, but it cannot do that ahead of time.

So, if we cannot predict how long or how deep a high-risk market level correction will be, what do we need to do? Stay tuned...

Supply Overtakes Demand!

Supply overtaking demand is exactly what has happened in the current market. Actually, it started to happen toward the end of May in many sectors of the market then, in June, it finally overtook the market in general.

So, what does that mean?! That means that selling has overtaken buying in the market and stocks are now going down in price. At this time, the market is at its highest risk level.

And what does that tell us, and what can we do about it? Stay tuned...

High Risk Management

When we talk about the overall market, a certain number of stocks are on "put signals" for a certain period of time. This information is put into a supply-and-demand graph.

When it gets to a certain level, the market is considered to be "high risk." High risk mans the market can still go up if the demand is there, but you must mitigate the risk. You buy on pullbacks, buy half positions, buy ETFs instead of individual stock positions. You buy strong relative-strength stocks, tighten up stop-losses, and get rid of weak stocks in your portfolio. You stay strong in market sectors.

Then, after all of your careful planning and portfolio management, the inevitable happens...

Let's Get Technical About Analysis

I use technical analysis for my basis of investing. Technical analysis basically determines supply and demand both in the market, within a sector, and for an individual stock.

I also use a proprietary method of determining supply and demand which has worked very well over the years. This methods tells me whether the market is in a high-risk or low-risk area.

So, what does that mean? Stay tuned!

High-Risk, Low-Risk, What's Next?

When this blog was first posted in June, I made the statement, "A more productive method of looking at the market is whether it is at a high-risk or low-risk level. When the market is at a high-risk level, you must be very cautious when investing, regardless of the overall market trend (up or down). Today, the market is at a very high-risk level."

Well, you may be wondering if I knew the market was going to down this significantly. You may also be wondering whether it will continue to go down even more. The answer to both is: yes and no and I don't know. So, wait until next time!

An Amazing Grasp of the Painfully Obvious

In a study apparently conducted by the Consortium for Research on Emotional Intelligence, it was determined that most people conduct their trades based on emotion. Surprise!

The study went further and pointed out that if the person was using a broker, who also suffered from poor emotional control, they would do poorly in the stock market, as well. Surprise!

But, apparently, those same people could do better on their own, although quite poorly overly, if left to their own. The only time the scenario changed is if the person had a broker who exhibited integrity, emotional control, a firm grasp of the market overall (instead of a Henny-Penny-Sky-is-Falling approach), and was capable of directing the client to maintain in a down market or buy at times they would typically be inclined to wait it out. Surprise!

And for all the bluster, study results, published papers, and talking head coverage, it boils down to hiring a broker who has your best interests at heart, is willing to manage their own money the way they want to manage yours, keeps their emotions off the trading floor, and acts with integrity and honesty. No surprise there!

Just For Fun... Let's Follow This Trend...

So, we've determined that we cannot effectively predict the future, but there are things we can do. We can follow trends. That's one great thing technical analysis does--it follows trends. By following trends, we can determine if a stock price is going up or down or saying the same. This is very important if you want to make money in the stock market.

But, before we do this, let's talk about the two kinds of research in the stock market--technical and fundamental research.

Let's Make a Prediction

Want to see predictions at work? Ready? Set. Go!

• Roger Clemens is going to strike out 19 batters during his next game.
• President Bush will admit he's wrong about Iraq and begin troop withdrawal immediately.
• Gas prices will drop to $2 a gallon by December.
• A gallon of milk will cost $5 by January 1, 2009.
• Paul Rivera of Biloxi, CA, will win a million dollars playing the lottery two years from now.

Aren't these the most ridiculous things you've heard in a long time?

Well, it's no more ridiculous than any of the idiotic talking heads on CNBC predicting where the market will go in the future. They have absolutely no idea. None whatsoever. Do not listen to them. They will mislead you--whether by mistake or design. Do not trust them. Nobody can predict the future, especially when it comes to the stock market.

The Dow - A Summary

So, what have we learned about the Dow Jones Industrial Average?

• It is the oldest and most-quoted average.
• It contains only 30 stocks.
• It is price-weighted, which skews the average.
• It is not a reliable indicator of the market averages.
• And, most important for investors, it simply is not that important.

Don't get caught up in the CNBC hype!

Is the Dow a Reliable Market Indicator?

Well, let's see...

The stock market has about 7,000 stocks. The Dow has 30. What are the odds the Dow is a reliable indicator of the total market? Not very good.

There have been many times the Dow has moved in unison with the market and has been an excellent market indicator. Yet, more often than not, it is not a reliable indicator of the general market.

So, the answer to the original question would have to be, generally, no.

DJIA - A Reliable Indicator?

In short, the answer would be no. After all, it's just an average. While it's a famous one, it's just an average with only 30 listed stocks. It's price-weighted. It actually tells us very little. It tells us even less about the Dow itself, unless you dig through the information.

Imagine... last week the Dow was up, but only 8 of the 30 stocks hit new highs. If you owned the wrong 8, you didn't do so well. If you owned the EFT, the Diamonds, you did quite well.

Most investors' portfolios don't coincide with the Dow, so for most investors, the DJIA is just a number. Nothing more. Nothing less.

The DJIA - How High Can You Go?

The Dow hit another new high this past Thursday. It was up almost 300 points. On Friday, it hit another high. The newspapers and talking heads on CNBC were out with party hats and big announcements to boost their ratings.

But, the Dow is just 30 stocks! How many new highs were there this month for these stocks? 30? 25? 10? 5? Actually, it was only 4. Only 4 stocks out of 30. A mere 13%! But the price of stocks were at the high end of the Dow - CAT, MO, UTX, XOM.

But, let's be fair about this. Let's expand the criteria. How many of the Dow stocks hit new highs this year? 30? 25? 10? 5? Actually, it was 8. Only 8 out of the 30, which is just 25% of all the members.

Something doesn't seem quite right here. And it seems to be the DJIA!

Remember this little lesson for the future. I'll explain why it's important to your portfolio later...

Determining the DJIA - Who or What is Responsible?!

Alright, you were asked to figure out how the DJIA is determined. What was your guess? Let's see if you were right...

The Dow Jones Industrial Average is unique in that it is a price-weighted average. That means the higher priced stocks move the index a greater amount than the lower priced stocks.

But what does that mean?

If a company's stock is selling at $90 a share, and a different stock is selling at $45 a share, the higher priced stock will move the index more than the lower priced stock. However, one of the many flaws in this type of system is quickly revealed when that $90 stock splits 3-1 and is now selling at $30 a share. The stock then moves the index less than the $45 stock. Do you think that makes sense? Of course not!

Big news (all the time) - the Dow hit a new high! But what does that mean? Did all 30 stocks high new highs? Did most of them?

Won't you be surprised... stay tuned...

How is the DJIA determined?

Now that Portfolio Bunny has explained what the Dow Jones Industrial Average is, the question is: How is that average determined?

Logic would dictate you average out all the stocks, divide, multiply, and so forth. WRONG!

Some people might think each stock would have an equal weight in the index. That would make sense, even to Portfolio Bunny. But... it's WRONG.

There are some indices that are weighted by market capitalization. Meaning the larger companies with more stock are given a greater weight in the index. For example: a company like GE would cause an index to move 10x more than a company 10x smaller. WRONG AGAIN!

So, how is the DJIA determined? Come on. Make a guess and send it to Bunny. You might even get it right!

But, in case you can't figure this one out on your own, stay tuned and Portfolio Bunny will give you the answer tomorrow.

What is the Dow Jones Industrial Average?

Well... it's not a mediocre floor cleaner for manufacturing plants.

What it is is the oldest and most quoted market indicator in the United States and the world. It consists of only THIRTY stocks! Most people would consider these "blue chip" stocks.

The DJIA was first published in 1896 during the Industrial Revolution. Initially, it was all industrial companies--hence the name "industrial average." But, over the years, the shift has been made to service companies like Microsoft, Disney, Coca-Cola, and McDonald's.

So, when we talk about the Dow Jones, and it only consists of 30 stocks in a market containing more than 7,000 stocks, how important is this index?

Bond Market Rollercoaster

Alright, it's not the death-defying coasters at some theme parks, but the bond market definitely goes up and down with daily fluctuations.

Long-term bond interest rates fell below 5% yesterday and ended up at 4.98%. Just the other day, it was at 5.13%. Not too long ago, it was at 5.25%. The Federal Reserve Board hasn't met since all this happened, so who or what is responsible for this?

The answer is--the same people responsible for the ups and downs in the stock market. Everyone who trades in the bond market; from the biggest buyer and seller, to the smallest.

Supply and demand controls the bond market. As demand comes into the bond market and more people buy bonds, bonds go up in price and interest rates go down. When more people sell bonds, they go down in value and the interest rates go up. It's really that simple.

What determines interest rates in the bond market?

Well, it's not a catchy title, but...

There are many factors that determine interest rates in the bond market. There are short term, intermediate term, and long-term interest rates.

For interest rates, one of the greatest influences is the Federal Reserve Board. It determines the discount rate which, in turn, affects the prime rate for banks. Most loans are dependent upon the prime rate. However, because the Federal Reserve Board meets no more than once a month, this doesn't happen every day.

If you've ever tried to lock-in a mortgage rate, you know how quickly rates change. So, what or who is responsible for the daily rate fluctuations?

Bonds and Interest Rates and Consumers, oh my!

Supply and demand are the cause for ups and downs in the stock market. And individual consumers create supply and demand. So what affects an individual's ability to purchase or creates an impetus to sell?

The bond market has a great influence on the stock market and the economy. The bond market determines interest rates. Bond prices and interest rates have an inverse relationship. As bond prices go up, interest rates go down. As bond prices go down, interest rates go up.

The rise and fall of interest rates directly affect the economy because businesses have to borrow money, consumers have to borrow money, and consumers and businesses have mortgages on property. The higher the interest rates, the more it costs to maintain the debt, and the less money there is to invest.

So, the question arises: What determines interest rates in the bond market?

Supply and Demand - Ultimate Responsibility

So, Portfolio Bunny wanted to know if you could figure out who is responsible for the supply and demand aspect of stock prices and movement in the stock market. Did you make a guess?

Well, Portfolio Bunny would love to say it's her (it would sure be an ego boost!), but that's not true. The answer is (drum roll, please)...

Everyone who buys and sells stock in the stock market. From the largest mutual funds to the smallest investor, everybody plays a part in determining supply and demand in the market. It is the one fact that will save your portfolio from disaster, so don't ever forget it. In future posts, you will learn more about the importance of this commonly ignored fact.

Mental Post-It Note: The market moves up or down based on supply and demand. Supply and demand is determined by everyone who is part of that market.

Supply and Demand - Who's responsible?!

Now that Portfolio Bunny has cleared up the little matter of supply and demand causing the rise and fall of stocks and the stock market, a new question rears its ugly head. Who determines supply and demand? I mean... who's responsible for this?!

Perhaps it is a mysterious group of people sitting in a back room of the NY stock exchange deciding what goes up or down for the day. No. That's not it, although the conspiracy theorists would like to think so...

Perhaps it is the analysts at brokerage firms making recommendations to buy or sell a stock that day. No. That's not it, although that bunch of egomaniacs would like to think so...

Perhaps it is the large pension plans and mutual funds. No. That's not it, although that group of egomaniacs would like to think so...

I know! It's the yahoos at CNBC! No. Although that bunch of talking heads would definitely like to think so...

So, if it's not the NYSE, or analysts, or mutual funds, or talking heads... who's responsible?!

Think about it! Portfolio Bunny will be back with the answer... so stay tuned!

Supply and Demand - A Stock Answer

You already know what drives the stock market (and the supermarket) -- supply and demand.

But have you ever wondered why a stock you own comes out with fantastic earnings, then drops down in price the following day? Or why a stock you own has terrible earnings, but goes up in price and makes a huge run over the next few months? Did you ever wonder why the analysts from the big name brokerage firms keep recommending a particular stock and it keeps going down in price? Admit it! You've wondered about these things.

The answer is, once again, supply and demand. It is the reason a company's value goes up and down. There is no other reason. If there are 10 people willing to purchase a particular stock at a certain price, but there are only 2 people selling that stock at a certain price, since demand outweighs supply, the price of the stock goes up. It's that simple.

And who determines supply and demand? Give it a guess and stay tuned. Portfolio Bunny will be back in a flash with the answer.

Demanding a Supply of Better Answers

In the previous post, Portfolio Bunny said, "There is one and only one thing that causes the market, sectors of the market, or even individual stocks to move in one direction or the other." You were asked to guess the answer. Did you guess it? Did you try?

Well, the market went up over the past few days. Do you know why?

Actually, the answer is just three little words, but before I give them to you, let's give you a few more chances to figure it out yourself...

I'm sure you've noticed gas prices are higher than they were a year ago. Have you wondered why?

How about the higher prices at the supermarket?

And what about housing? In some areas of the country, there was a housing shortage and the prices were increasing as much as 50% a year! Now, there's a glut of new homes on the market and housing prices are decreasing.

So, what do all of these things have in common? Three little words -- supply and demand!

Supply and demand is a basic economic principle. And that, ladies and gentlemen, is what causes the price of stocks to go up and down. Now, you know why the market goes up and down. And now you are smarter than the dumb bunnies who still think it is caused by war, interest rates, or any of the other nonsense the talking heads offer up.

Market Up - Market Down

So, what makes the markets go up one day and down the next; or up one week and down again; or up over a few months only to drop again over the next few months?

Some of the talking heads on CNBC or the Nightly Business Report would have you believe it's the economy. Another talking head will tell you it's the Federal Reserve raising or lowering interest rates. Yet another of the "experts" will tell you it's China or India. Then, on Lou Dobbs, someone else tells you it's the problems in the Middle East. Finally, someone from a brokerage firm tells you it's the housing market. Eventually, if you listen long enough, you will probably hear someone blame the market shift on El Nino!

The fact is all of these things can affect the market--good or bad. But none of these things cause the market to move in one direction or the other. There is one and only one thing that causes the market, sectors of the market, or even individual stocks to move in one direction or the other.

Can you figure out what that is? If you want to take a guess at it, feel free to send your guess in Bunny Chat. Otherwise, stay tuned and Portfolio Bunny will give you the answer... It might surprise you!

No more Bull. I can't Bear it!

Bull markets. Bear markets. We’ve all heard about them. By strict industry definition: a bear market is when the market exhibits a down trend of 20% from its high. And by the same standard, a bull market exhibits a strong up trend.

The problem with the talking head definitions is that, by the time the gurus on CNBC and other media issue their proclamations of a bear market, your portfolio may already be devastated by a loss of 20% or more. So, waiting around for the “experts” to tell you whether it’s a bull or bear market is just... well... bull.

A more productive method of looking at the market is whether it is at a high-risk or low-risk level. When the market is at a high-risk level, you must be very cautious when investing, regardless of the overall market trend (up or down). Today, the market is at a very high-risk level.

So, what exactly makes markets go up or down? What determines how risky a market is? How can you adjust your portfolio to protect yourself? How can you preserve your capital? Portfolio Bunny will be back with answers to these and many more questions... so, stay tuned.

Portfolio Bunny Dishes Up the Legal Mumble

All commentary provided by Portfolio Bunny is provided for educational purposes only. Portfolio Bunny may hold positions in the stocks or industries discussed here, then again, Portfolio Bunny might not hold positions in them. The information provided by Portfolio Bunny is NOT a recommendation or solicitation to buy or sell any securities. If you use the information provided by Portfolio Bunny you understand there are no promises, warranties, assurances, or other inducements. In other words - when you buy stocks or other securities, your assets are at risk. Make your choices carefully. Don't be a dumb bunny!