I have been trading, investing and studying the financial markets since college, and I have never been so confused and baffled by the markets behavior. In reading, listening, and talking with others (some more seasoned than I am, which is hard to imagine given my 40 year history), these folks are feeling much the same way. The market is ignoring the Iranian closure of the Hormuz straight, North Korea's missile firing, the confiscation of a North Korean ship that was violating a trade embargo, the talk of a Presidential impeachment, and of course the trade wars. In the past, any one of these things would have sent the markets into turmoil.
So, it's crucial to be prepared for anything. I recently opened a fortune cookie and the fortune read, "Hope for the best and prepare for the worst." Good advice. My goal is to help you along this path. Oddly enough, using moving averages, the markets are putting out a buy signal but I am not sure I trust it.
See the below chart:
Can you see the possibility that this is a false signal? On the following page you will see an very in-depth look at another chart using the 50 and 200 day moving averages. This chart also makes an argument that the market could run further, but in my opinion, the signal is also fragile.
Since 1999 this indicator has given 3 accurate sell signals
I love this chart! As you can see, since 1999 there have been 3 buys signals, and 3 sell signals. There have been three head fakes on the sell side, and none on the buy side, and there has been only one time that this indicator has given both sell and buy signals in the same month, or even the same year. After seeing this coupled with all the drama I wrote about in the it weren't for those things would have no problem trusting this buy signal.
The bottom two boxes are solid evidence that the buy and hold strategy is losing its effect. From 1929 until present, the 50 day average has been above the 200 day average 66% of the time. While giving this buy signal, the market provided an 8.88% return. If you stayed in through the sell signal your yield dropped to 5.67%. Not bad. However, if you look at what happened from 1999 to present, staying in the market would have provided just a 3.5% return. Still not bad, right? Well, the problem is that few people can manage to hang on during a major sell off. Most novice investors will bail out and sadly, near the bottom. They stay scared and don't enter until a lot of upside has been grabbed by the pros.
These models recently shifted to the positive side by suggesting you increase your stock market weighting from bonds
In my last article I told you that $20 billion left the stock market last week. Do they know something we should know? Did you know that money has been flowing OUT of the stock market all year? Prices are climbing because companies are buying their own stock. This move causes their earnings per share to falsely rise, hence propping up their share price. However, all the kings horses and all the kings men couldn't get the S&P up again. The market began the week with the SP at an all time high of 2940 all the way down to 2866.
This all leads to confusion. We have market bombs going off all around us. Yet old and trusted indicators are giving us buy signals on top of the SP losing 75 points! I've said before that, I am a pilot and pilots have a saying; "I would rather be on the ground wishing I were flying, than in the air, wishing I were on the ground." The former is a small disappointment with not flying, and the later of being in the air during a storm is life or death. I have been up there wishing I were on the ground one too many times! Do you plan on flying this week? If you do, bring a parachute and choose your stocks very wisely!
If you'd like to learn more about what we're doing at University of Options you can email me directly at [email protected] or visit us on our website at www.universityofoptions.com Hope to connect soon!