The bank stress test, can you believe it?

The bank stress test, can you believe it?

Since my return from holiday, I have been scratching my head wondering why the market (in this case the S&P) has moved so high for little or no reason. The economy still appears to be very much on the defensive with unemployment rising and the business environment still on a slippery slope.

I made this video before the stress test was announced and I suspect that all of the stress test leaks have already being discounted by the market.

Video link on next page ...

My new video is a follow-up from my April 14th video that I made before I left for New Zealand. If you have a few minutes, please take the time to view it. I think you will find it interesting that my observations may conflict with current market trend.

With the Obama honeymoon coming to an end, we are going to see how the markets move without government influence. There has never been a government that was able to dodge a major business cycle... and this one sure is a doozy.

As always, the videos are available with our compliments. There is not registration required.

Please let us know your thoughts on our blog.

All the best,

Adam Hewison
Co-creator, MarketClub

15 thoughts on “The bank stress test, can you believe it?

  1. "If the Jim Cramers of the world are to be believed"

    If Bozo becomes Pope.
    If elephants fly.
    If a politician can go one day without lying.

    Those things, mind you, will happen BEFORE Jim Cramer is a reliable source, and not just a feather in the wind.

  2. I started trading in 1998. I learned much in the ensuing bear market.
    I went long financials when the S&P was in the 600's. I sold in the 700's. There is no doubt in my mind that we will retest our lows, but first I see the S&P testing 950 and maybe even 1000. I have started to go short at 900, and will buy in at each resistance level. Adam is correct in my opinion, and I feel bad for everybody who is buying back into this market. Those of you who are long, it would be wise to sell covered calls and purchase protective puts to protect your backside. Be careful!!

  3. "Now they are all green"

    For another week or so. After that...

    Problem is, do you know exactly WHEN they will turn red? If you do, then go for it by all means. Otherwise, you are headed for disaster.

    Adam is quite right. The fundamentals are no good. I have great respect for Adam's instincts in ignoring his own trade triangles in this case. Sometimes you go with your gut. His gut is correct. Clearly he can keep his wits about him while the world goes mad.

    1. "do you know exactly WHEN they will turn red?"

      You can ask that question with respect to trade triangle technology for any other stock, ETF or index any other time. What made oil go up to 145 and then go to 30 in the next few months? If only market follows fundamentals....

      I don't know when they will turn red. But I KNOW that I should sell when they do turn red. That is what I was told in all the earlier videos at least.

  4. Sometimes, you say - just follow charts, technical analysis and your own trade triangles. Now they are all green, asking you to buy and you say we need to consider fundamentals? You have something against Obama?

  5. "The economy still appears to be very much on the defensive with unemployment rising and the business environment still on a slippery slope."

    It's generally recognized that unemployment is a lag indicator of the economy. All credible projections say that unemployment will continue to rise, even as the economy recovers.

    Also, the stock market generally recovers before the economy does, so you could have the beginning of a bull market even while the economy is still struggling.

    If the Jim Cramers of the world are to be believed, March 10 was the beginning of a bull market. If Nouriel Roubini is to be believed, this is all a "dead cat bounce."

    I don't claim to fully understand the stress tests, but if it's a smoke screen, it has been a darn good one. And they have created interesting shell games and ways to keep bailing out banks without going back to Congress for more money. One is the Public-Private Investment Program for Legacy Assets (PPIP).

    A less-discussed one is the widespread conversion of our preferred shares (paid for with U.S. tax dollars) in banks to common stock. This is widely heralded as a way of adding capital to the banks "without additional taxpayer money." The part they leave out is that we will no longer get the interest we received on the preferred shares. Before, we had given them a loan of sorts. Now we'll just have regular shares floating on the open market.

    We might be out of the woods ... then again, the next shoe to drop might be a collapse in commercial real estate, as many have predicted. This will primarily hit smaller, regional banks.

    By hook or by crook, if they can maintain this momentum in the markets, I think it will ultimately stimulate consumer spending. They will get back to their tried-and-true negative savings rate, ha (further enriching banks all the while). And then off to the next debt-based bubble ...

    It would have taken a Great Depression to truly change the American psyche, get rid of our bad habits and create a new "greatest generation."

    But ... it was just way too tempting for politicans to put a bandaid (or a "tarp") over it. Lesson NOT learned.

    1. In other words, you don't have a clue whether to trade
      long or short (per your post). And, you have memorized,
      almost word for word, the programmed brainwash mantra
      that CNBC shills like Cramer, stuff down the throats of
      their veiwers on a daily basis.

      You don't sound wise - You sound hypnotized!

      1. Lew, all I can say to that is this: If you know for certain whether this it the start of a new bull market or a dead cat bounce, you are basically the smartest person in the world. Congratulations.

        I was discussing the overall direction of the economy and of America. If we're going to strictly limit comments to "which direction should I trade?", I think we're going up in the short term, but I wouldn't be surprised if we retested the March bottom during the next few months. So I'm bullish for the next few days and the next few years, but I have no friggin' idea what the market will be doing in two months. And honestly, I don't really care -- I'm a short-term trader.

  6. I have been interested in the last month or so in your particular analysis of the general market - s&P. Don't know much re technicals - so I cannot say I am a knowledgable trader. Have traded before on pure luck and made over 100,000 money - but now for me I cannot gamble anymore - Since I basically missed this ralley from the get go, I hope we do have nice pullback. I too believe the stress test was a bunch of fluff meant to alleviate concerns for MaryJane.

    I hope you are right and we do test the floor to see if it holds, I will be ready -

    Not a subscriber because I need to understand technicals to know how to trade.

  7. Stress test fiasco is really what they should be calling it.

    ok ... Goldman Sach's reports a 1.8 billion profit... how can this really be? Creative accounting... its such a farse.....

    However rather than getting upset .... let's make money...

    I trade the S&P, gold on a daily basis...

    Trading it daily means I'm in and out a number of times a day etc... This really lets me get a feel and "pulse for what the market is really doing and saying". What I've heard from a lot a "traders" is that they just don't want to miss out on this rally not that they really believe in it, they just want to ride and take some profits.... etc.. so what am I saying?

    There are a lot of momentum traders in the market right now; not real believers. Don't get me wrong there are some souls out there that believe the worst is over.... and really think that we already hit bottom.....

    Now on to the duping of the American Public. I always have a hard time believing Geithner when he comes on. In fact I find it laughable that someone who didn't pay their taxes is now in charge of yours! These stress tests are so secretive and ambiguous that how can they be believed?

    However... regardless they have had a positive impact on the markets as info. was leaked out. Today I saw the s&p shoot down early in the morn. ... then retrace back strong in the afternoon. The bull sentiment is still there... it will test the 934 level... and may test the 950 level... so its not time just yet to short....

    I know this is long but let me rant about oil.... Is there a logical reason oil should be at 58.50? NO! This is also a momentum play. Call me crazy... but I'm actually looking for a short play in oil....

  8. thanks,
    nice video as always Adam. Let's see what happens. however, mass getting inside pushed by news, professionals shorting and getting bailed out by the mass has kept this rally moving higher than expected and could still continue for a while.
    I haven't still seen any fear on the market. The rally will last until fear arrives again.


  9. Adam,

    I enjoy watching your videos. They always seem to offer something insightful, and I agree with you that the stress tests results are difficult to believe. However, I would just like to say that I have found that when I start to pick and choose signals based on my opinion about the fundamentals or other market conditions, it usually turns out to be a mistake. When we do this, we are superimposing the probability of our viewpoint being correct on top of the probability of the signal being valid, which reduces the overall probability of having a winning trade. If we have doubts about a signal, we can reduce the size of the position and add to it as it works in out favor. This reduces the risk if it doesn't work out.

    Just my two cents.



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