Explanation for Why the DOW was down by 700 Point Friday 2/2/18

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One Word: Instability

The instability of the US Government. The Democratic party, DOP, unilaterally made up the false accusation on Donald Trump’s Campaign so they could get the FBI wiretap him and his entourage. This is significant as this represent corruption, distrust, and instability in the US government. This would create the instability, and Wall Street is SPOOK by this. Many unknowns policy and consequences will follow. Wall Street doesn’t like the unknown.

The memo says then-FBI Deputy Director Andrew McCabe testified he believed a court would not have approved the warrant for the surveillance of Trump advisor Carter Page were it not for information that was included in a dossier assembled by former British spy Christopher Steele.

Two Words: Market Correction

The market has a great run since September of 2016, pushing up from 16,000 – 26,000. That is insane!! The market was OVERBOUGHT. Well, a lot of people was left in the dust, with cash sitting on the sideline, but many people are fully invested. Even many people has cashed out to jump in on Bitcoin at $18,000/coin, which is now down to $9000. Selling some of the winning position to recover $9000/bitcoin isn’t unreasonable.

Three Words: New Tax Law

Yes, most people will take their loses in 2017, but if you’re in the market to buy a house, this Spring, the new Tax Law allows higher income, that means you can be in the lower bracket or gain 4% (going from 28% to 24% or 35%ย  to 28%) if you’d sell in 2018, so why not SELL in 2018.

Four Words: Follow the Herds Mentality

Sell first, ask question later. When the market is open in the negative, and the Release of the Memo went out, everybody was selling, so a bunch of people are selling. The computer programs were selling, so that create a Selling Franzie.

On-going downward Pressure

The appetizers for the market downward pressure has been increasing the interest rate. Although the FED held the interest rate prior to Janet Yellen’s exit, but everybody is assuming the interest rate will go up. The housing sector is spooking that less mortgage application, and the new tax law doesn’t favor new homeowners because the STANDARD Deduction has been doubled.

My expectation for the Market opening on Monday:

If a bunch of people got stuck in margin calls, then there might be more selling pressure. If not the market will rebound 200 points, before selling more. Why?? There will be a big change in the DOJ, in the FBI. A bunch of connections, plan, projects will be put on hold, as it takes time to re-connect the established connection.

Also, 700 points downward is still wayyyyyy higher than the 16,000. So, if the DOW is not down meaningfully, a lot available cash still won’t jump in just yet. So, that is why you won’t see the rebound of immediate 700 points on Monday. hihi, I guess, I can speak for myself, I still have $100K to deploy for a Puerto Rico property, but it’s still such a mess, and no great deals are really happening, so I’m still sitting on sideline waiting for the right entry point back to the stock market.

If you follow the “buying the dogs of the dow” method, you can look at this chart:

 

If you follow the buying the “dog of the S&P 500” or selling the losers, you can look at this chart

 

CNBC has the following chart that look at what happen the NEXT Trading session after a big drop of >500 points on the DOW.ย  ONE DAY, ONE WEEK

 

ONE DAY:ย The Dow rose 1.5 percent on average the following day in the instances with a 65 percent chance of recovery.

 

ONE WEEK: The average return for the DOW is 2.83% at 71% chance of recovery

 

ONE WEEK: Top tech stock performers – They all cover >4.4% with minimum of 62% chance of recovery

What do you think about all of this??

4 Comments

  1. Hey rounded

    Nice post, i didnt know what really created the pullback. Last night my friends told me about this release. Great to find a post early to find more about it. Sadly politics is really corrupt. Hopefully this changes things and opens the publics eyes.

    Cheers best of luck with the property in puerto rico!

    • I’m glad my post helps.
      I hope Puerto Rico will recover soon, as St. John is 100% more efficient (There were alot of residents that are rich so they volunteer countless hours to help clean the beach, the road, carry people, building houses, etc. It is a community effort.

      Even with that, there are areas that people still have no roof, and without electricity. I still FEMA food truck unloading supplies.

      Puerto Rico’s medical plants or plants are struggling because they have no workers, they can’t tell their workers to get back to work as the electricity came back.

      It’s a double edge sword that they’re fighting. No electricity = no plants, no plants = no job, no job = no tax, no tax = no money for infrastructure. In the meanwhile, the government has no sign of getting any smaller and be more efficient.

    • I agreed! And it showed, as today the market was brutal again beating the 62% odd of getting a rebound only to further shedding. It’s pretty much needed.

      Watching my 401k went down by $20k in 2 sessions was cool. ๐Ÿ™‚ I haven’t increase my contribution from $18k to $18.5k yet, maybe it’s a good time to do so. That’s nothing compared to the $6B that Berkshire Hathaway is losing on WFC and airline stocks. Well, might as well as adding energy to the bunch.

      I’m waiting to see if WFC to go down further to get some more shares. The banking industry has done “too” well the past year, so if this market is actually corrected , they stand to lose a lot of money.

      I’m also watching out for O, D, GE, NRZ … they all can increase my dividend income tremendously. ๐Ÿ™‚

      As for Puerto Rico being a hub for crypto currency. It’ll all come down to the final horses, a bunch will go on the market like back until the days with the dotcom. Now there is only a handful of companies that made it. China, even camera company are creating their own currency. If Puerto Rico is smart, they can create their own currency, and would be less dependent on the US dollars, they might be able to pay off the debt in crypto.

      A bunch of guys in Puerto Rico, living on the high rise, smoking weeds, asking for funding while they’re chilling gives me chills when people actually give these guys millions of dollars to spend. ๐Ÿ™‚

      The Puerto Ricans aren’t poor, 66% of them own their house out right. And of the 30%, 1/3 of the mortgages are in distressed. These distressed ones aren’t worth buying, the ones that I want to buy the prices haven’t come down at all. So, I might as well as investing away in the stock market if it goes down a bit further or in the correction territory.

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