“When God throws … The dice are loaded!”
Greek Proverb

I have been around the markets for more time that I do care to remember and I have seen some really “incredible games” played by market makers, brokers, traders and many other individuals and or various groups!

In fact the “big players” have been charged and paid huge fines many times for stock market manipulation, so please don’t delude yourself into thinking that everything that goes on in the markets is what it really looks like!

For example, on the Eve of Christmas in December of 1997, when all was quiet on Wall Street, Nasdaq market makers quietly agreed to pay a $1 billion fine to settle a class action suite that investors brought against them.

The charges were ugly. “Collusion,” “gouging,” “extortion,” you name it! If it sounded like the charges were befit a two-bit mobster, they were in there.

Guilty!

That’s what they were, by their own admission!

Many times you will feel that the market will pull the rug out from under you. For example, when certain stocks are really hot and they are gaining 8% or 12% a day, do you realize how many people see that and figure…

“I’ll just buy into these stocks and make a fortune?”

Well, guess what?

The market makes its money by taking yours! And whenever something gets into too much of a pattern, the market will reverse course.

Several market moves are very often manipulated and orchestrated. It’s amazing that a certain stock or a whole sector can be on fire and everyone wants in, yet the “waves of sells” hit that stock or sector at the exact same moment … and down it goes in flames!

Did hundreds of individuals all at once decided to take their profits?

I think not folks!

This is the more sinister side of the market and although you won’t find any paper trail or “proof,” the fact is that “wholesale moves” are quite often … planned.

Can you figure out why the banks fell like rocks and low-caps started flying? Did all those fund managers come upon the same idea at exactly the same day? So, what do we do when it appears that certain moves can be “instituted?”

We can anticipate and we can out guess them!

For instance we know that nothing goes straight up. Right? Well when you get a nice run up for a couple of days, you have to start thinking about taking your money home because selling will hit in a big way.

Playing the market is somewhat like driving defensively. You always have to be ready to anticipate what the other driver will do.

You have to anticipate what the market is going to do and stay with the trends. If the market runs a sector, you will run with it, but you will also be waiting for the turn and be very fast to bail out.

If the big players want to take cash out of i.e. bank stocks and buy into another sector’s stocks you have to have a good idea of that sector’s stock before all the money gets there.

Often all it takes for a major reversal is for a few fund managers to see that a competing manager is selling a portion of his portfolio … and boom!

They are all selling for all they’re worth. Why? They don’t really know! But maybe “HE” knows something!

So whenever you see something that moves too much … get ready for the inevitable downgrade!

When a great company is on fire … watch for the “overvaluation” call to come!

When money is being made in fistfuls, get ready for the wholesale sell off. Be prepared with your stop loss orders in place. Be quick to take your profits.

To beat them at this game you definitely need an edge and the edge is to always be prepared for their next move!

A lot of people don’t understand the games that are played and have taken big and sudden losses. Ever wonder why conventional thinking says, “Invest for the long term and ignore the daily ups and downs?”

It is because the market as a whole has been and will keep going up!

But along the way market makers and institutions will be making their upgrades and downgrades, and taking money from traders who don”t know how the game is played!

You can “play this game” and win, but you must learn what to look for!

So understand that short-term holds can produce great profits, but it won’t be easy, as the market will indeed try its best to take your money …

Don’t let them!

Twenty months ago you bought the XYZ stock for 100. You were right to follow your hunch with the XYZ’s. Your 100 has skyrocketed into 275 in just twenty months!

Well, this Thursday you’ve been checking the stock prices and in the newspaper the headline reads “CRASH”. You read on and discover that yesterday the stock market had dropped another 9%, not to mention the fact that XYZ’s stock value had been deteriorated to 57. You can’t believe it!

Twenty months of expectations and dreams, all gone, in just a few days!

What brought about this crash?
Why such a drop in such a little time?

One major reason for the crash was fear. Fear of a correction. Fear of a drop. Fear of being to late to get out …

The past twenty months had brought large stock increases, people had been making fortunes on the huge surges in the stock market. People began to fear that the market wouldn’t be able to go up forever, and eventually it would fall, and create what is called a correction.

The fear began to accumulate about twenty days ago, when The ABC Journal published an article entitled, “Stocks May Face a Great Correction.” It voiced fear that a correction would bring on a landslide. People began to listen, and the big fund managers began to worry and started selling.

On Sunday news of a potential collapse was the straw that broke the camel’s back.

The morning of last Monday, began with a quick loss of around 7%. Although, the market did rebound a little before closing, the landslide had begun.

On Tuesday the market opened and started losing too fast to hold back! Many of the big fund managers were selling off fast the rest of their holdings!

On Wednesday the market plunged, and after the closing bell rang, there was silence between the brokers.

People were speechless …

And the majority of them were broke!

One of the biggest problems with investing in the stock market is that there are no guarantees. You can do your homework pick a likely stock and still watch as it falls to oblivion.

Has this ever happened to you? You subscribe to a newsletter because the magnificent advertisement makes it sound like you can’t possibly lose by following their advice. But as soon as you put your money in somehow their advice stops working?

Well now there is a solution. And believe it or not it has been around for a few years but most investors have never heard of it. This “secret” stock market investment lets you get all the gains of the market with none of the losses. Sounds almost too good to be true doesn’t it? Plus you get all the advantages of options without having to know anything about them.

Well maybe a little . Here is how it works. If you invested 80% of your money in Zero Coupon Bonds and 20% in options you could design a system where at some point in the future the Bonds would be worth the full value of your initial investment. That is because Zero Coupon Bonds are bought at a discount to “Par” value. So if they are selling for $8 today at some point they will mature and be worth $10. So this is how you get your “Guaranteed” return.

Even if the options turn out to be 100% worthless at the final date you will still have all your money back. But because of the leverage of options, if the market that the options are based on increases 10%, the options will increase enough to make your entire investment increase 10%.

Now you might be thinking that’s fine, but I don’t know anything about options or perhaps you just don’t want to be bothered. Well now you don’t have to be. A couple of years ago Merrill Lynch developed an investment that does all of this for you in a simple single investment. They are called “MITTS” which stands for Market Index Target-Term Securities.

“MITTS” are available for a variety of Stock Market indexes and expiration dates including all of the Major indexes like the Dow and the NASDAQ but even more than that, they are available for many other indexes too, like the Nikkei, the Russell 2000, Biotech, Defense, Energy, EuroFund, etc.

“MITTS” trade like ordinary stocks meaning that there is a quote and your broker can buy them and sell them for you instantly just like a stock. Just like “Zeros” if you sell before maturity it is still possible to lose money but they are guaranteed if held to maturity.

Let’s look at a specific example. Suppose you wanted to invest in the BioTech industry. You could buy a BioTech “MITTS” symbol (BMA). On the day that Merrill Lynch created it, it was worth $10. On September of 2005 Merrill Lynch had the right (but not the obligation) to redeem it for $12.60. If they don’t redeem it sooner… on 5/4/09 it expires with the guaranteed value of $10. The BioTech index that they are measuring against was at 436.49 on the day they issued it and if the index goes up the “MITTS” goes up with it.

However, (here’s the good part) even if the underlying market index goes down on 5/4/09 you can get all your money back!

Of course, you can lose money in the short run (at least on paper) but knowing that you are guaranteed to at least break even might make it easier to hold on for the long run.

Another interesting way to play the “MITTS” stock market is to buy shares on the open market after they are issued and so your holding period would be shorter. (FML) an S&P500 “MITTS” expires on 3/27/06 so as of this writing it has a few months to go. Because the index is down from where it was when the “MITTS” was created you can buy this “MITTS” for $9.76 guaranteeing you a minimum $0.24 gain over the next 5 months $0.24 of $9.76 is 2.4% or 5.76% per year, not too bad for a guaranteed return. Plus if the S&P goes above 1262.14 you will be entitled to the market gain as well. Currently the S&P 500 is trading at 1194.57.

The only way you can lose with “MITTS” is if you buy after the initial issue and the stock market has risen significantly since the issue but then it goes down from there. Suppose the above S&P index “MITTS” rose so it was now trading at $10.76 instead of $9.76 and over the next few months the index went down. You might end up only getting $10 at the expiration date. But it still has a floor unlike a normal stock which can go to zero.

The only other ways you could lose would be if the US Government defaulted on the underlying Zero Coupon bonds or if Merrill Lynch went bankrupt.

So reduce your risk and invest using “MITTS”.

Tim McMahon
Editor
Financial Trend Forecaster