Stock Trading and Stock Investing

Stocks are over valued. It is a financial mania. We are still at the top of a bubble created by excessive optimism for decades in social mood. Entire population has stopped producing real value, celebrating service economy and trading paper assets hoping to buy and sell at a higher price to a greater fool. Here is how excessive the trading volume is as a percentage of GDP:

http://www.tradingstocks.net/html/financial_mania_continues.html

Stocks are a major bubble. According to hundreds of years of market history, we are at bubble valuations when we consider that dividends are all time low. These low dividend ratios appear at market tops. Not at market bottoms. We have not seen a long term stock market bottom back in March 2009:

http://www.tradingstocks.net/html/near_bottom.html

Why are people buying stocks? The population has a herding mentality. A herd does not act rationally. People look at each other and feel content to be doing what others are doing. This is similar to those sheep who follow others off the cliff to their death.

Beware, earnings do not drive the stocks. Investing based on past earnings is like driving looking at the rear view mirror. There are always good news and bad news. Media picks the headline according to market action. But stocks are a leading indicator. Good earnings appear at market tops. Earnings decline AFTER the stocks decline:

http://www.tradingstocks.net/html/earnings_drive_stocks.html

Financial media will present it other way around so that entire population reads their stories about what happened, looking for clues about the future.

Stocks move first, economic effects become apparent later. This is because social mood drives the markets, economy, politics. And when the mood swings, people first buy/sell stocks, and act on economic activities later:

http://www.tradingstocks.net/html/socionomics.html

We just left a major stock market top behind. This may not just be a double dip. It is possible that March lows will not hold. The bear market rally of 2009 was expected after over sold conditions. But now we are back into bubble territory and coming down. Debt is the problem and we have more of it now. Nothing has been fixed. We have borrowed the stimulus and we have spent it. Now we are going to face a mountain of debt. Merely borrowing and spending money cannot make an economic recovery.

Back in March 2009, in the middle of bad news, bullish sentiment was only 3%. Virtually everyone was convinced that the stocks were going lower. But we found a bottom and rallied. Fast forward to one year later, by the end of April 2010 92% of traders were bullish. That is a 180 degree turn for the market sentiment. But that is what makes a market top! Everyone, including the mainstream media was convinced that stocks would go ever higher. People bet on the long side and started to wait to sell at higher prices to the the greater fool. But the last rally of the leg was visibly weak and the technical indicators were ringing the bells that we were approaching a top that makes market timing possible:

http://www.tradingstocks.net/html/latest_opinion.html