Tweet
So I read plenty of investment books when I first started in 2008-2010, but I didn't understand many of the ideas at the time; like interest rates, or p/e ratios, or earnings growth and value. They are kind of vague ideas you would have a hard time talking to a little girl or boy about.
I always wanted to learn value investing and I definitely wanted to wait for buy and sell signals from market timing systems. There was one book in particular I liked detailing how to time the market using Federal Reserve interest rates and reserve requirement ratios.
I knew the fed was important, but I couldn't see how the interest rate effected everyday lives. It had almost no impact on my life, so I couldn't see the value. But I think I finally understand it now. it's all about credit. And the world runs on people buying things. They don't have enough money, but they do have enough credit.
So back to where are we in the thread and in the market. I'm going to go through checklists to get an idea if the market is high or low, then if it is going up or down. First, the market can always go higher. If there is enough money out there, and people are buying stocks, the market will go higher. People need credit to do this, and credit is controlled by interest rates.
How are interest rates doing? Interest rates have been rising since march 18th 2022, when they rose from 3.25% to 3.50%. They've gone up until July 26th 2023 where they rose up to 8.50% and are currently at now. That's for banks giving out credit to people.
Now the Federal Reserve. The Fed controls the interest rate that Banks receive credit, so they have more money when interest rates are low or falling, and less money when interest rates are high or rising. The federal reserve raised interest rates from 0.00% to 0.25% on march 17, 2022, and has been raising interest rates up to July 27, 2023, where they are 5.25%. The important point as far as the stock market goes, is the Fed is not increasing credit. You need more money for stocks to go up more. Based on rates, we should expect stocks to move sideways from this level into the future. Sideways could mean 20% up, and 16% down, or 15% down, and 17% up. That, according to what I've read and witnessed, comes down to sentiment, momentum, and earnings.
I've always seen the reason behind sentiment and momentum and earnings. Sentiment is just people spending their money. When everyone is negative, people will spend their stocks and keep money, and when everyone is positive, people will buy stocks and spend their money. Momentum is almost the same thing, as it is gauging the amount of money someone will spend on a stock or the amount of stock they will sell, according to how much people are already buying or selling a stock. It means people will keep spending money on the same things, and sentiment is just a way to tell how much money is left to spend. Right now There is no momentum in the stock market, and sentiment is not in an extreme negative or positive. This means it will come down to earnings; and earnings are different for each company. This is where I would go back to my other thread and just buy the top buys and sell the top sells, 10% in each and net the difference.
The last thing I didn't mention is P/e ratios. I noticed, using my screening software, that p/e ratios were ranging between 8 and 15. Historical Norm's from what I sourced were about 9-15, so we are in a normal market. This means it all comes down to stockpicking. In a year from now, the stocks with the best earnings will be higher, and the stocks with the least earnings will be lower. That is the case until the Federal Reserve starts lowering rates. From scientific studies, after the Fed lowers interest rates twice in a 6 month window, we have to look for strong appreciation in prices of stocks. We have to look for ten days of strong prices in most stocks. This could be sideways up and down after a fall, or straight up. That means we have momentum in the market, most of the market, and increasing credit. I've never executed this, but the last opportunity was in April of 2020.
Also the scientific evidence suggests we have 18 months after the Fed is lowering rates and after we see momentum in the market before the increase in prices stops. Finally, we have the stats that the market actually falls on average when we are not in these 18 month periods by -3.0%.
So I decided to wait for the start of a new credit cycle before I buy. Until then, I'll daytrade futures and update my Top buys and Top sells.
I always wanted to learn value investing and I definitely wanted to wait for buy and sell signals from market timing systems. There was one book in particular I liked detailing how to time the market using Federal Reserve interest rates and reserve requirement ratios.
I knew the fed was important, but I couldn't see how the interest rate effected everyday lives. It had almost no impact on my life, so I couldn't see the value. But I think I finally understand it now. it's all about credit. And the world runs on people buying things. They don't have enough money, but they do have enough credit.
So back to where are we in the thread and in the market. I'm going to go through checklists to get an idea if the market is high or low, then if it is going up or down. First, the market can always go higher. If there is enough money out there, and people are buying stocks, the market will go higher. People need credit to do this, and credit is controlled by interest rates.
How are interest rates doing? Interest rates have been rising since march 18th 2022, when they rose from 3.25% to 3.50%. They've gone up until July 26th 2023 where they rose up to 8.50% and are currently at now. That's for banks giving out credit to people.
Now the Federal Reserve. The Fed controls the interest rate that Banks receive credit, so they have more money when interest rates are low or falling, and less money when interest rates are high or rising. The federal reserve raised interest rates from 0.00% to 0.25% on march 17, 2022, and has been raising interest rates up to July 27, 2023, where they are 5.25%. The important point as far as the stock market goes, is the Fed is not increasing credit. You need more money for stocks to go up more. Based on rates, we should expect stocks to move sideways from this level into the future. Sideways could mean 20% up, and 16% down, or 15% down, and 17% up. That, according to what I've read and witnessed, comes down to sentiment, momentum, and earnings.
I've always seen the reason behind sentiment and momentum and earnings. Sentiment is just people spending their money. When everyone is negative, people will spend their stocks and keep money, and when everyone is positive, people will buy stocks and spend their money. Momentum is almost the same thing, as it is gauging the amount of money someone will spend on a stock or the amount of stock they will sell, according to how much people are already buying or selling a stock. It means people will keep spending money on the same things, and sentiment is just a way to tell how much money is left to spend. Right now There is no momentum in the stock market, and sentiment is not in an extreme negative or positive. This means it will come down to earnings; and earnings are different for each company. This is where I would go back to my other thread and just buy the top buys and sell the top sells, 10% in each and net the difference.
The last thing I didn't mention is P/e ratios. I noticed, using my screening software, that p/e ratios were ranging between 8 and 15. Historical Norm's from what I sourced were about 9-15, so we are in a normal market. This means it all comes down to stockpicking. In a year from now, the stocks with the best earnings will be higher, and the stocks with the least earnings will be lower. That is the case until the Federal Reserve starts lowering rates. From scientific studies, after the Fed lowers interest rates twice in a 6 month window, we have to look for strong appreciation in prices of stocks. We have to look for ten days of strong prices in most stocks. This could be sideways up and down after a fall, or straight up. That means we have momentum in the market, most of the market, and increasing credit. I've never executed this, but the last opportunity was in April of 2020.
Also the scientific evidence suggests we have 18 months after the Fed is lowering rates and after we see momentum in the market before the increase in prices stops. Finally, we have the stats that the market actually falls on average when we are not in these 18 month periods by -3.0%.
So I decided to wait for the start of a new credit cycle before I buy. Until then, I'll daytrade futures and update my Top buys and Top sells.
Comment