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 Bear 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? My newsletter will help you remain conscious in a very unconscious world.
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. My daily report is your earning warning system as I say for both Bull markets and Bear markets.
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 overidden 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 and investing e-newsletter 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 analysis 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 newsletter 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 indices 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 signal reads “BUY.” But if those issues are not in the way and the signal is BUY, you may decide to buy on a signal change for example.
Please note that although market symbols are not given in the table, in your own ETF investing or trading you may choose to use an ETF or index mutual fund that mimics the index designation listed in the table. You can plot your fund or chosen ETF and versus the one I follow on the Yahoo Finance site.
Just type “Yahoo Finance” in your browser and you can go to the charts and do these comparisons between the index I follow and the fund you believe will match it reasonably well. If the ETF matches the index and it is not overvalued vs. its net asset value, it may be a good trading vehicle for that index (net asset values also can be found on Yahoo or at the site that is the home of the given ETF).
There is an important message behind not publishing many of the ETF trading symbols and that is that it leaves the responsibility with you to be conscious about your own investment process. A different ETF or fund may be a better vehicle at as time passes, because their fees go down or because the premium to net asset value is lower. Since these thing may vary daily and I cannot change our index choice daily, it's better to identify the best ETF or mutual fund when YOU invest.
Also, since you cannot simply “plug in” a symbol and buy, it requires a level of awareness to make a purchase that will serve you well. 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 siganls 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.
What about timing your entry into the investments in our table? In general you will find that index or ETF investing earlier on in a potential rally entails more gain and also more risk. If a market changes from a full bear to full bull or vice versa, it will generally take months to switch back to the opposite polarity fully.
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. You may want to do that in steps as outlined by our "Scaling In and Scaling Out" Special Report which will be sent to you when you subscribe.
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 stage, respectively.
I call a “full” Bull market a “Bull 5” instead of a “Bull” and a "full" Bear market a "Bear 5" instead of "Bear" to note that shifting for one day to the new categorization is not a definite buy signal as reversals do occur. It’s just the nature of the beast that we must look for follow through after any show of strength or breakout to new highs or a show of weakness and a breakdown to new lows.
Most traders and market timing experts routinely consider a breakout or break down suspect until the 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.
Another thing to note is that there can be a shift from a Bear 4 or 5 stage to an early Bear to Bull stage such as "Bull 1" followed by the resumption of a Bear 4 or Bear 5 rating. 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.
You may see the market signal change from a Bull 4 to a Bull 3 to a Bear 2 signal. That is a common progression. It is based on a progressive deterioration of the strength of the market. It reflects a progressive deterioration of the trend from up to down. Once an index reaches Bear 5 status as many did during the Bear Market of 2008-2009, I may decide to begin the count over at a Bull 1 status if I see support forming. This is where our intuition accrued over years of market trading comes into play. Technical analysis like the practice of medicine is both a science and an art.
If I do not receive additional technical analysis signals that indicate a possible market bottom, you will see the progression back up from a Bear 5 to a Bear 4 to a Bear 3 to a Bear 2 and back to a Bull 3 and eventually a Bull 4 or 5. However, that is not usually how markets look when they have finally bottomed. That “reverse progression” pattern that is based on our indicators and correlates with increasing market strength is more likely to be seen when the first of several lows is made during a Bear market. The market may gain strength triggering a Bull 1 signal and then give it up and may even trigger a Bear 4 or 5 signal once again.
So I will only rate a market a Bull 1 after a long Bear market when I feel there is a reasonable chance that a bottoming process has occurred. V bottoms are hard to trade and sometimes require us to entire a bit later than the eager beavers. We give up some gains at times to be sure that we are not beeing taken for a ride. Realize that these signals may reverse as the market retests the bottom one more time, perhaps not going as low, but there are no guarantees of this. The same sort of pattern of topping may occur as well and might prompt the use of the Bear 1 signal. This would indicate the possibility that the market had made an important top and was selling off again.
As I mentioned this naming business is an art of sorts in practice, because the key is that the trend is shifting which can be expressed either as turning from Bull to Bear in a decline or as shifting from Bullish to less Bullish. For example, the first time the market pulls back from a top, there is no ceiling formed by the single high, but as the market goes up to retest the top and fails, a ceiling is established and a Bear 1 signal could be issued if the market then declines from that top. Calling it a Bull 3 market would also express a loss of momentum from Bull 4 status.
So again, it is more important to note the downgrade or upgrade than to focus on the exact terminology.
The calling of a Bull 1 or a Bear 1 signal does not mean to throw all your money in or take it all out immediately, respectively. It may present a point to scale in or out of the market though or if induced by a major market changing event a time to exit more quickly. Again, if you do not take the early signals and scale out quickly (on more than one day if you are scaling), you will not be protected from a 9 -11 type of sell-off.
A BUY once it becomes a BUY stays a BUY until things change in the trend. The same applies to SELLs. I may move a market to a HOLD from a SELL, not because it is turning up, but because the market is at a support level and it’s a poor place to sell. Then, once the market begins moving down again, I re-rate it as a SELL. In the same way, when a market that is a BUY hits resistance, it may become a HOLD until it makes it through the resistance on the chart.
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 the newsletter and your own skills of technical analysis. The newsletter is meant to give you more than information. 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 second or the third sell signal and then you’ll have to re-enter the market when it goes back to rally mode.
One key question you will need to answer is whether after being in a market for a prolonged run in Bull 4 status (full Bull market), will you use market timing signals and sell if things start deteriorating? If you sell a correction in a prolonged BULL, I believe it must be done at times on the first signal or in a quick scale out, even if you have to take some small losses when the markets engineers a “fake-out.” Otherwise, there will be a tendency to sell late into a correction, followed by a reversal. What that does when you are wrong is sometimes trim your gains during bull markets. That is the risk of any trading of course. There is just no way around it.
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 35 indices is an ongoing process, and I may expand or limit the Market Trend Table more in the future. In any case, the key indices will be covered.
You can see the entire list in any of the Sample Issues posted here: Sample Issues of The Wall Street Sun and Storm Report™
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