LEPIDOPTERA SECUNDUM part II

LEPIDOPTERA SECUNDUM part II

By Doctrader

Is seams ironic that unique names do mean something. Katrina is shaping up to be one of the biggest and costliest hurricanes of this century. The butterfly (lepidoptera) effect could be the straw that breaks the camel’s back of the U.S. economy. I take notice that the “Alcalde” is far away from the storm in Jackson Hole, Wyoming. Last week in “The Butterfly Effect” , and in the Alcalde’s speech a few days ago, the ability to predict the future effects on economic condition are limited. The Fed is using risk assessment, to determine costs vs. rewards when gauging economical policies. The Federal Reserve Banking system was designed to weave crinoline into the patch work financial system to soften the blows of recessions and depressions. Yet, I contend, “bon gre’, mal gre’” (willingly or not), more harm, more uncertainly, has been created by the Alcalde from creating disquietude with his disquisitions and proclamations. The Federal Reserve Banking system assumes the role of risk management, weighing outcomes, without considering the “homme moyen sensuel” (the average man on the streets).

For example: The stock market bubble created by the innovations and the abundant liquidity trap that was allowed to build creating a tulip bulb calamity within the NASDAQ market place. Yet earlier in the 1990‘s, the Alcalde cried “irrational exuberance” when human nature drove the indices to higher ground, well below the precipice of 2000. Yet, after the market exceeding the “irrational exuberance” comment, the Alcalde revised his expectations of the future lofty levels by saying he failed to account for the productivity curve. Following the decimation of the NASDAQ market, the Federal Reserve entered into a series of aggressive interest rate cuts, creating trillions for the bank board members with failing bond rates. Meanwhile, disencumbering millions of small investors of 9 trillion of paper profits. The member banks, begin to shift their new found wealth with in the form of real estate to finish the coup de gra on the middle class. The new bankruptcy laws that will be in effect in October, have guaranteed the member banks to inherit most of the real estate, should there be an economic collapse. One thing that never changes, there will be, by human nature, another economic collapse caused by the butterfly effect.
Last week, the stock market continued it’s slow and measured decent below the signal lines on the daily chart. There are several reasons for a slow decent, one is that of massive program trading, which continues above 50% level. The high level of program trading indicates big money managers slow taking profits and buying portfolio protection. The second reason, is most active traders have been on vacation during the month of August. This may soon change, as Katrina builds more energy with the emerging sunspots and possible solar flares dump more energy into the earth’s biome. The end of the month window dressing for mutual funds, who do not want to hold onto their laggards during September may begin to raise cash for emergencies and contingencies related to Katrina.

The McClellan Summation Index continue its downward slope.

My trend indicator indicates 205 stocks of the sp500 are trading below the floor. While the percentage of stocks trading above their 200 day m.a. is at 63% Since this cyclical bull market begin in March 03, the percentage of stock trading above their 200 dma has ranged from 25% to 90%, reaching its precipice exactly 1 year later in march 04. The March 04 precipice followed the fibonacci retracement of 50% to exactly 45% of the stocks trading above their 200 dma. I posted the charts in the club site. Those who have studied the fibonacci numbers can see the significance of the numbers and what the future may hold.

If you are a long term holder of stock, have you bought insurance yet on your portfolio? What?! You didn’t know you could purchase insurance against catastrophic losses? You think the Federal government will come to your aid like the victims of Katrina? Did the Federal government or agency come to your aid when the NASDAQ market fell? What has changed since then? If a rising tide lift all boats in the stock market, then what does a sinking boat offer?

So how can your protect your portfolio with insurance? You have to purchase put options, which will offer you some protection against catastrophic market collapse by increasing in values as stocks prices fall. The CBOT offers for free, and excellent option software and training program, which you can use to determine how to protect your portfolio against losses and to maximize your portfolio with income in stable markets. I have post a link at the free club yahoo users group, docsstockclock.

God Bless,
Doctrader