Yesterday's Market was lead by FEAR

The definition of yesterday's market: FEAR. No one is willing to move, waiting for the edge to drop off, or for all to bull back.

A number of subscribers wrote yesterday, and some great teaching about trading can take place from these inquiries. First, from Advanced Mentoring student MP, concerning something he read:

ARE THESE FALSE FACTS?
By David Wilson

June 22 (Bloomberg) -- U.S. and European stocks are destined to fall below March’s lows if bear-market history is any guide, according to Jim Reid, a strategist at Deutsche Bank AG.

Share prices tend to hit bottom “at extremely cheap levels” relative to earnings during so-called secular bear markets, Reid wrote five days ago in his first equity strategy report. Secular bears consist of multiple rallies and declines, with each slump producing lower valuations than the prior one.

The CHART OF THE DAY shows the Standard & Poor’s 500 Index’s price-earnings ratio since 1900, based on data compiled by Yale University’s Robert Shiller and cited in Reid’s report.

Shiller calculated the P/E ratio at 6.6 in September 1982, just before the 1980s bull market started. The gauge sank to less than six in the depths of the Great Depression and at the beginning of the 1920s. This year, it has stayed above 13.

“History tells us that at some point in the next decade there will be much more stressed valuations than today and a once-in-a-generation buying opportunity,” wrote Reid, who previously focused on credit-market strategy.

Even “a large rally” later this year and into 2010 may not be enough to prevent this scenario from unfolding, he added. The S&P 500 has climbed as much as 40 percent from its March 9 lows. Reid’s European benchmark, a local-currency version of the MSCI Europe Index, has risen as much as 33 percent

Floyd response: MP's question was "are these false facts?" These are not EVEN facts, but opinions. Reid may indeed be right, but it is first important to find out more about the source of the "information" and the "opinion."

1. Reid is an employee of Deutsche AG Bank, who has not done too well recently:)

2. A bit of study shows Reid as a 34 year old analyst, who before joining Deutsche was a "European Credit Analyst."

What we can gain here is that Reid was simply "quotable." He is NOT a trader, not a stock analyst, but an employee of a bank.

Floydian Rule #785 - 98.6% of all bank executives know only about banking, and how to promote themselves. Do NOT trust anything about the financial services sector.

And from subscriber LR from Romania:

Hello Floyd,

thank you for your fast response. I didn't watch the futures to see that they were down 77 points.
I am trying to learn your alerts very very well.
I am from Romania, a EU member country. I was a subscriber of your level 2 at the beginning of 2008, but didn't have patience to paper trade for 90 days and to apply a correct portfolio management.
During that month when I was a subscriber, you sent 22 alerts ( approx) and only 1(one) of them was loser, the rest were winners. I had the bad luck to invest my whole account into it and almost lost all my money.

Floyd Comment: LR did what many traders first do when trying our service. They "buy" a position, and "buy again and again" and hold "for it to break" and lose their money. As LR is learning, it is key to learn our system through paper trading, and dollar allocating your investments for your risk level.

My favorite false fact of the day is this: " Home sales in the U.S. increased in May, for the second month, a sign that the housing market issues are abating."

The facts? Record foreclosures caused home prices to drop, allowing home sales to increase.

Now, the market. What we saw in yesterday's trading was a "waiting game" in advance of the FOMC announcement. How Bernanke says how things are somehow means a lot to a great deal of people.