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Investor Education: Euphoria Wears Off, Market Reality Hits

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inthemoneystock
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Investor Education: Euphoria Wears Off, Market Reality Hits  Reply with quote  

The markets surged dramatically higher last week, following the avoidance of the catastrophic Fiscal Cliff. A deal was struck in Washington D.C. to keep taxes the same on those making less than $400,000 and families making less than $450,000. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) had its best week in over a year and the average investor and media breathed a sigh of relief.

While last week it seemed as if the world was saved, this week the market is on pace to have its second down day in a row. The SPY is trading at $145.32, -0.60 (-0.41%). So why is the market beginning to sell after such great news last week? There are multiple reasons which will be explained below.

1. The market had a dramatic move to the upside of around 5%. It is common see a pull back after such a big move up.

2. The Fiscal Cliff deal struck in Congress only dealt with the tax side. The spending cuts were kicked two months down the line. The spending cuts are arguably the bigger factor to the market as they will influence future growth dramatically.

3. The U.S. will hit the debt ceiling in two months. This means the United States will default on the debt if the ceiling is not raised. A major battle is brewing between Republicans and the President. The Republicans are going to be demanding huge spending cuts if they are to vote in favor of increasing the debt ceiling. This will likely be the final stand and even more important to the stock market. Remember, if the debt ceiling is not raised, the most powerful country in the world would default on its debt.

4. The Federal Reserve has signaled they may stop printing money by the end of 2013. The QE policies of the Federal Reserve have arguably inflated the stock market for the last four years. Think of this as a drug addict (the stock market) that is addicted to drugs (QE). As the year progresses, this will become more and more of a worry to the markets.

The bottom line is this, it appears more and more that the pop from last week may be short lived. It is very possible we could see more downside as the second Fiscal Cliff nears. I am looking to short charts that have PPT Strategy setups in them.

Gareth Soloway
InTheMoneyStocks
Post Tue Jan 08, 2013 6:16 pm
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Did you write this yourself?

I ask because the admins don't like us copying/pasting content from other sources.

See Proof. You can make free money online.
Post Wed Jan 09, 2013 4:05 am
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coaster
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The email address corresponds to the byline, so I'm fairly confident the author is either the poster or is authorized by the poster.

~Tim~
Post Wed Jan 09, 2013 7:30 am
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I agree the points in the post are very valid and it's an extremely well written post.

Thanks for verifying it wasn't a copy/paste coaster. Smile

See Proof. You can make free money online.
Post Fri Jan 11, 2013 1:46 am
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coaster
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Well, thanks, Dana, but you give me too much credit. I didn't verify it; I just said that from the evidence seen at a brief glance, it's most likely genuine, and with limited time available, mods have to pick and choose what needs further action to verify and what is probably a waste of time. Wink

~Tim~
Post Fri Jan 11, 2013 7:01 am
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groodscom
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Sorry for the newbie question, but what do you mean by the government will "default on their debt"? Isn't more like missing a payment thus lowering their credit score?

I sold off a lot of my stocks a month ago and I thought it was a bad move due to the last few weeks of them bouncing back. I was planning to wait until the debt ceiling was raised or not before getting back in. This could be a good buying opportunity.
Post Thu Feb 07, 2013 2:51 pm
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littleroc02us
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I too was looking at this post and believe it is valid. Sometimes it's hard to tell when it is so well written.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Feb 07, 2013 3:52 pm
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coaster
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quote:
Originally posted by groodscom
Sorry for the newbie question, but what do you mean by the government will "default on their debt"?

No, a missed payment IS a default.

BTW, your comment about your regrets having sold your stock is the main reason you should not buy or sell long-term investments on short-term economic news. Markets go up and markets go down; but they primarily go up over the long term; *however* what is not often factored in is that long-term up average depends on being in the market *continuously* because the great majority of the gains are made on a relatively few number of days, and if you happen to be out you miss those days and it seriously compromises your long-term results. You just can't time the market, period.

~Tim~
Post Fri Feb 08, 2013 7:57 am
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groodscom
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Good advice. This is the first time I've made this mistake. The good news is that I still made a lot of money.
Post Sat Feb 09, 2013 5:23 pm
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