An Update From Harry Dent

Harry Dent's June 2012 Update

Canary in the Coal Mine
The major problem I experienced with the crash that resulted in the last Great Recession was that everybody was afraid to come out and tell the general public just how bad they thought things could get, with one exception.  I watched Mad Money with Jim Cramer on CNBC and one night he told his audience that if they had money invested in the stock market that they might need over the following five years, they should sell that portion immediately.  I did just that, but it was already too late.  While I did not lose as much as most people, it was still a big hit to my portfolio (i.e.: life savings).

The Media?
As it turns out, there were a number of people who came forward, later, to tell us what they knew and how things looked pretty bad to them, well before it actually happened.  The trouble is, what they were trying to tell people was not very popular at the time - certainly not with the broadcasting media.  As for the rest, do you think they would actually say anything to you and me, even if they suspected the worst? (That is where the term "whisper number" comes from - they'll say it to close allies, but not publicly).

Odds Are
Cramer took a lot of heat for telling people to sell.  Many in the industry called him irresponsible.  I appreciated the fact he had the courage of his convictions and was one of the few people I have ever heard actually telling people to sell.  The Buy and Hold types may scoff at the warnings, but as Mr. Dent says in this video, if things don't get as bad as he thinks it might, then worst case is we miss a little to the upside.  If he is correct, we miss a lot to the down side.  Any time I find myself in a situation with little chance of gain, and a huge chance for loss, I will gladly sit it out until the odds are more in my favour.

Technically Speaking
When do I get back in?  When the technical indicators say so.  I'll be one of the first to say when I see the technicals showing me a good re-entry point.  I am no investment professional, and can not advise others what they should do with their money.  Personally, I have been short, or out of this market, since before the year began.  I see no reason to change now.  For other peoples' sake I hope Mr. Dent is wrong, but right now, it just isn't a risk I am willing to take.

How do you see your chances?

Technical Analysis - Research In Motion



Click to Enlarge



Troubling Chart

Despite the fact that, fundamentally, Research In Motion appears to have value at current prices, the chart points out a significant problem.  The weekly chart shows the stock has been in a multi-year downward trend.  The region between the green lines I drew on the chart is known as a trend channel.  The closer we get to either boundary, the greater the chance of a reversal.

While the chart does not indicate RIM is a good longer term investment, buying at a reversal near the bottom of the channel could result in a healthy shorter term profit.  What does not appeal to me about this option is where the channel leads in relation to the blue line which appears close to the top of the channel.  That line represents the 200-day moving average.  It is the result of the average of the preceding 200 days, and the average of the preceding 200 days one day prior to that, and the average of the preceding 200 days one day prior to that, and so on.  I always hesitate to own stocks which are trading below their 200-day moving average because they have a greater probability of downside surprises.

Technical Indicators

For most people, it would be too lengthy to go into an explanation of all of the technical indicators I use.  The ones I rely on include Volume, Moving Averages, the Relative Strength Index, Keltner Channels, Percentage Price Oscillator, and Stochastics.  For more information on these, I recommend http://www.stockcharts.com/.

For more of an introduction to Technical Analysis, my favourite is an older classic called Secrets For Profiting In Bull And Bear Markets by Stan Weinstein.  It is a well written book that covers the basics.  I had thought it was out of print, but recently found it to be available on Amazon.  Investigating the Stockcharts website listed above can help in understanding various technical indicators and overlays not covered in that book.



I have also recently read Trend Trading for a Living by Dr. Thomas Carr.  I like the way in which he steps his readers through his process, step by step by step.  This is for more advanced traders, as he also describes his methods for options trading later in the book.  Even without the parts on options, the information is quite helpful.

Not This Time

For now, the technicals are telling me I should not be buying Research In Motion for my portfolio.  That's okay.  While there are not that many tech companies in Canada the likes of RIM, there are many, many good, growth companies I can make money with.  I like great companies I can invest in, but I love great companies whose shares are at the extremes of what they should be selling for when the charts are signalling the start of a new trend.  That is the advantage gained by combining Fundamental Analysis with Technical Analysis.