I hear the following quite often:
- "Is it too late to get back into the market?"
- "I'm afraid that I am getting in at the top and I am afraid I'm going to get crushed!"
Quote worth Quoting Again
"The Constitution is not an instrument for the government to restrain the people, it is an instrument for the people to restrain the government."... Patrick Henry
Last week, I attempted to explain why it is more important to always be in the market, unless your strategy is to specifically be in cash, virtually all of the time.
Keep in mind that "in the market" does not necessarily mean you must have a bullish strategy all of the time. There are times when a short bias makes a lot sense. In fact, there are many times that you might have part of your portfolio long and part of it short. Right now, for example, in my money management portfolio, I am 90% long the market, but I have a component of my and my client's money that is short treasuries. In this case, I am long in an inverse ETF that will go up rapidly as interest rates rise.
A few days ago, I got out of my short position in Natural Gas. We made a very solid profit being short Nat-Gas while be mostly long in the rest of the portfolio.
My point... With the equity analysis and forecasting tools you and I have available to us today, there is no reason to be sitting on the sidelines. However, it is so very important that you always have your exit strategy in place. Regardless of the tools we have, there are always going to be situations where the market moves against us. As important as it is to always be in the market, it is equally important to have your risk of loss measured and know what will happen if your trade moves against you.
Where is the market headed?...
Sometimes, it is a worthwhile exercise to study history to see if we can see any similarities to the current market. I realize that we've never had a runaway Fed before, but there have been other massive exogenous events that have occurred in the last 100+ years; such as the Great Depression, two world wars, the cold war, Vietnam, the Korean War, 9/11, and others. All of these events, including the massive QE program of the global Central Banks, of which the US Fed is the most aggressive, have moved the markets.
Take a look at the chart on the right. I know the numbers are too small to read, but let me delineate a few of the important ones:
- There have been four "Consolidation" periods (green shaded areas on the chart) in history where the market traded in a fairly narrow (relatively speaking) range: a 19-year period between 1906 and 1925; a 13-year period between 1937 and 1950; a 16-year period between 1966 and 1982; and, currently, a 13-year period between 2000 and the present day.
- There were five times in the past 113 years that the market moved significantly above the upper level of the Consolidation period and then fell back. This happened in 1917 and 1919 in the first Consolidation period; once in 1946 in the second Consolidation period; once again in 1973; and one more time in 2013... unless this is not a repeat of those other times in history (see the next bullet point).
- In 100% of the cases over the past 113 years, each time a Consolidation period ended, the market went on to experience multi-year raging bull markets. This happened in 1925, 1950 and 1982. We don't know, at this moment, if the bull market of 2013 is the break-out of the most recent Consolidation period or not. Only time will tell. It would surprise me if this break-out of 2013 marks the end of a 13-year Consolidation period and the beginning of a multi-year raging bull market. But, it could be.
I suspect it is more likely that we are in a pattern similar to 1917, 1919, 1946 and 1973, than the start of a multi-year new bull market. If this suspicion is correct, then we could certainly see a big-time sell-off just like what happened in 1917, 1919, 1946 and 1982. That is, if history chooses to repeat itself, and there is no guarantee that will happen.
I think the best investment/trading strategy in this (or any) market is be a long-term investor, one week at a time. Keep the following in mind:
- Using CycleProphet's buy/sell signals over the past 3 years, those signals have resulted in performance that was four times better than the S&P 500.
- In a raging bull market over the past 3 years, a buy-and-hold strategy resulted in over 22% of the equities listed in the CycleProphet database (over 6,000 in total), losing money, while following CycleProphet's trade-timing signals, only one-half of one percent (0.5%) lost money in that same period.
- CycleProphet buy/sell signals resulted in substantially more winning trades than losing trades and the winning trades were more than twice the size of the losing trades.
What this tells us is this... Staying doggedly disciplined and following our buy/sell signals has proven to dramatically outperform the market. This is why I am strongly bullish right now. But, each one of my long positions has a stop limit in place... just in case.
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