I wanted to have a way to quantitate my market timing observations based on technical analysis as well as on fundamentals about the state of the 65 major market indexes and sectors I follow. I use this information to do "market timing," which is simply deciding when to enter and exit the markets.
Everyone times the market to some degree. You have to decide when to buy and sell, so why not buy and sell when it makes sense to do so based on the direction of the markets?
Although the bias is toward technical analysis and market timing, I use a technofundmental approach, because I take the economic factors into consideration that are driving the current market trends. Nearly all stock market trading systems rely on technical analysis.
The result of years of observation and research is my Market Timing Trend System™ which you can review by clicking the following link... Market Timing Trend System™
It’s arguable which is the more precise target of technical analysis: using the indices themselves or the ETFs, when you are in fact market timing the ETFs, not the indices. Bottom line is that mostly I track the ETFs, while being aware of issues like dividends.
In the case of foreign markets, as an example, most investors do not trade the Indian market overnight, although some may. And then there is the consideration of currency issues. Most Americans are underinvested in foreign currencies, so owning foreign stocks that are unhedged is a way to achieve some of that diversification.
When you follow the chart of the Japanese Nikkei, you are looking at it in raw terms without the currency interplay. When you look at the EWJ Japanese Nikkei ETF, you are looking at both the stocks and the currency component.
So it makes more sense to follow the INDA ETF than to follow India, because we can act on that information. Feel free to make your own observations on other indices as you follow our observations. I recommend that you do a search for the most tax and cost efficient ETFs to invest in net of all fees.
Why should you use this system? What are the benefits?
If you are out in left field chasing Chinese stocks and our technical analysis market timing indicators tell you the Chinese market is generating a SELL signal with a DownTrend™ Type 2 status, you need to look up!
I provide the attention grabbing market timing tap on the shoulder to ask you whether you really want to stay long when the market is diving OR whether you really want to be afraid when the market is clearly and steadily entering a Bull market. You need a market timing, trading, and investing system, really a financial market investing and trading system to succeed. Why invest with one arm tied behind your back?
People commonly lose money mostly due to lost opportunities - opportunities to SELL and to BUY, because they fall asleep at the wheel. They ignore market timing completely.
You heard this before but it’s very important to emphasize that the BUY/SELL/HOLD and market timing stage classifications are NOT recommendations. Please read the two disclaimers in the newsletter and on this website before investing. They represent investment opinion, not investment advice. You must make your own decisions, since I am not an investment advisor, and I do not know what your needs are either short or long term.
These signals are market timing indicators that you should use with your own final judgment and that of your advisor should you use one to invest your assets. Any investing system should be overridden when there are specific personal circumstances and risk tolerance that must be considered. If a given ETF or index mutual fund is too volatile for you to sleep at night, do not invest in it or trade it. Period.
This market timing system is first and foremost about taking 100% responsibility for your own investment results. You will have to make your own decisions no matter how much technical analysis as well as fundamental insight I provide, and you must be comfortable with your own investment decisions.
The beauty of it is that it will act as a check on your own judgments and intuition. Often we lose touch with what is really happening when there is no system in place to wake us up. When your car starts to bump on the shoulder of the road, you steer back onto the road. It's the same with technical analysis and market timing. They tell you when the markets are drifting off the road and are about to crash in many instances.
Your results should improve as you invest more consciously. This market timing system may just provide the extra nudge you need to build your consciousness as a successful investor. Investing or applying market timing in fear and/or greed is deadly and many investors don't even recognize these emotions are hurting their decision making ability.
Some more notes about the system. You will learn more about market timing via technical analysis and how I apply it by reading this material.
I recommend you consider other criteria such as valuation or volatility to stand clear of a given investment if it does not suit you. Some indexes are more volatile than others, so you can generate fast gains, but also fast losses. For example, the double and triple positive and negative ETFs that track a given index, but promise 2 or 3-fold the bang for the buck can be devastating to your investment capital if you are wrong about your entry point. If you see that a given ETF moves up or down 10% in one day, that may be too volatile for you. Use an index that is less volatile. Feeling uncomfortable about your investments is not wise. Why add that stress to your life?
Back in 2008, the financials were moving 10% during one day, so if you triple that, you have a crash in your leveraged instrument. Technical analysis cannot help you avoid losses as well when you trade a financial instrument that is extremely volatile. If you believe a given index is too rich or is too stretched looking on the chart and you are favoring that it will pull back to the trend, don’t buy it even if the "Action to Consider" is to buy. But if those issues are not in the way and the action to take is to buy, you may decide to buy on a positive signal change for example.
Even when I give you ETF names, I recommend you look at the alternatives that correlate with the ETF I am following. Some of you may be restricted to funds alone in your 401Ks, but index funds are commonly offered as alternatives to the traditional mutual funds, many of which have disappointed investors.
Furthermore, you may actually find a better ETF or more cost effective fund than the one I might pick for various reasons. I may follow an ETF that has a longer track record that allows us to make our technical judgments, whereas the best ETF on a valuation or net asset value basis may be a different ETF. Many companies have screeners for mutual funds and ETFs and it’s a great idea to use those to make side-by-side comparisons and decide what issues are critical to you in a given account and make your choice accordingly.
I usually will use market indices to generate the technical analysis signals unless, as in some cases, it is easier to follow an ETF traded in the U.S. You could also use an individual stock as your chosen investment vehicle, but the degree of correlation of your results with my market timing signals will be far less.
I want to re-emphasize the need to be careful about net asset values of funds. On some market days, there can be enormous spikes in volume, say during a short squeeze, when rising prices are forcing speculators who are short a given ETF to buy it to cover their short positions. This can cause a spike in the ETF that is unrelated to its net asset value that is based on the holdings of the ETF.
Please be careful to check ETF net asset value premiums or discounts prior to investing, as the premium you pay, for example, may quickly disappear and hurt your results (I do not vouch for the accuracy of any website noted here, but have used them ourselves.). Consult an investment advisor if you are unable to find an appropriate fund or vehicle for ETF investing or trading. Search engines make it easy to find this information.
The other consideration is making sure there is sufficient volume in the given ETF, or you may find there are huge spreads between the bid and the ask throughout the day. If the amount of money invested in the ETF is small, this can be an issue, and you may want to avoid that ETF.
In general you will find that investing earlier in an ETF as it morphs to a more positive trend type entails more gain, but also more risk.
If you wish to permanently allocate a certain amount to stocks for example, that is not necessarily a bad choice. If that number is 100%, you may lose 89% of your money at some point in time.
As an example, why not consider moving from 60% stocks at market tops to 20-40% stocks when stocks come off what looks like a top and increase your asset allocation to stocks closer to bottoms? For example, after the SELL signal in 2007, you could have scaled out of the market and reduced your stock exposure from say 60% to 30%. After the Bull signal came off the March 2009 bottom, you could have scaled back into the market and brought your equity exposure back to 60% or even higher, reducing it to 60% as the market climbed. This is just one example. How much to move out of one investment into another when these signals occur is a matter of your personal investment philosophy. When you scale in or out, do so in steps. That is another key risk management strategy. Add to winners and get rid of the losers before they become bigger losers. Just because you don't book a loss or even look at your account statements does not mean it hasn't occurred.
A few things should be said about signal changes. Just because there is a switch during a bull market from a bull to bear, does not mean that a full scale bear market will suddenly start. There may be no further deterioration in the state of the market. But it does say that it’s likely that the prior progress either up or down will be interrupted for a few to 6 months at least, before the prior trend resumes. If during that period things move further against the prior primary trend either BULL or BEAR, that will show up in a worsening or improving trend type in my system, respectively.
Most traders and market timing experts routinely consider a breakout or break down suspect until the 2nd or 3rd close or later after the signal is triggered by the new high or low, respectively. No market timing indicator is perfect and in the end we must respect the price of the investment as the final arbiter of whether we should buy or sell.
If the trend changes, we do not sit there and sing the praises of the market. We sell and protect our capital, at least in the case of our trading positions. If you sell at the wrong time, it is far better to admit it and re-enter the market, than to wait for "the truth" to dawn on the market.
A BUY once it becomes a BUY stays a BUY until things change in the trend. The same applies to SELLs.
Can you already see how much you can learn by following the markets with me? You will begin to develop your own intuitive sense of the direction of the markets as you read both my social media posts and my blog posts at MarketTiming.Blog and develop your own skills of technical analysis. It gives you an education. Or if you are a seasoned trader, it provides a check on your thinking, on your own market timing signals.
If you sell late, the best you can do if you need to protect capital is take the next sell signal (downgrade to a still weaker trend type) and then you’ll have to re-enter the market when it goes back to rally mode.
This market timing system does protect against swoons like 1987 if you use the early signals. The new Wall Street crash protection trading curbs in place may have effectively prevented the possibility of a huge one day crash. We now get the same result stretched out over several or many days rather than 1 day as in 1987. 9-11 was like that. The losses after 9-11 were over a few days, and we were already down quite a bit prior to
Even in the preceding rapid 2008 - 2009 decline in the markets, there was a chance to “get out.” It was a cascading multi-day crash. Not so in 1987, unless you sold an early technical analysis signal.
Even with the market protections that the government imposed after 1987, no market timing system can protect you from an outside event. The "Flash Crash" of 2010 proved that. That is why you must always have some cash and some gold in our opinion. Interestingly, our system WOULD have protected you from both 1987 and 9-11 if you took the early signals. You would have been out of the market well before both the crash of 1987 and that of 9-11.
Prior to using the current system, I was out of the market with the last sale, the Friday before Black Monday in October 1987 and had scaled out a significant degree during September. That was a technical and an intuitive call on the market. With this system, I would have been out far earlier with even more capital intact and ready to take advantage of the sell-off by buying far sooner than I did without such a system. This system would have been a great guide over the years.
One other thing. My choice of 65 markets and sectors is an ongoing process, and I may expand or limit my Market Trend list more in the future. In any case, the key indexes will be covered.
I look forward to having you join me and the rest of our Sun and Storm Investors™! At the moment there is no charge for access to my insights. To pay it forward, please like and retweet my social media posts. You can also like and share my blog posts at MarketTiming.Blog with others. In a sense, that is your thank you to me for what I offer for free, and it's appreciated!
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