Market Timing – Weekly Stock Market Updates

Posted: December 5th, 2009 | Author: | Filed under: Uncategorized | Tags: , , , , , , , , , , , , , , , , , | No Comments »

Weekly stock market updates that went out to subscribers from October 10 to the end of November 2009.

October 10, 2009

The market rebounded nicely this week. Now we have to see how
the market reacts at the resistance levels at the recent highs
in the market.

The trade date for the best 6-month strategy with MACD is
approaching this week. If the MACD is positive on October 16
we will go long. Currently the MACD could go either way by
the 16th. I will keep you posted with a mid-week update.

October 18, 2009

I am moving our stop on all open positions to 102.49. On Friday I
mentioned placing a buy stop $.05 above Fridays high. I am going to
raise that a little higher. I am adding 10% at a buy stop of 109.25.
If the market trades lower I will move the stop closer to the
previous days high.

October 25, 2009

I am moving our stop on all open positions to 103.10. If we were to
get stopped out this would be at break-even. If I do not like the
way the market is trading this week I may move that stop higher.

I try not to be a market prognosticator; I try to let the markets
show me what they want to do. The farther out you look the harder I
feel it is to predict what the market will do.

That being said something happen this week that gave me a gut
feeling similar to one I got in early March of this year. On
March 10, 2009 the SEC announced they were considering reinstating
the uptick rule. I won’t go into detail of that here, but the
S&P 500 index is up 58% from the March 9th close. This passed week
it was disclosed that the current administration’s pay czar would
limit Wall Street compensation. I will try to avoid getting into the
politics of this. Suffice it to say my gut is telling me this may
signal we are near a market top.

I do not trade on gut feelings, even though there are times I wish I
had. I will be watching how the market reacts this week and,
adjusting our stops accordingly.

October 31, 2009

I am keeping our stop on all open positions to 103.10. If we were
to get stopped out this would be at break-even.

Wow, how quickly market perceptions can change! The market was -1.9%,
+2.1%, and -2.8% Wednesday thru Friday. Needless to say volatility
is back. I thought maybe we were okay after Thursday’s market action,
but Friday changed that. Our stop at 103.10 is not far from Fridays
close of 103.56. With the market this close I do not see much point
in raising our stop. Until the market can make multiple closes above
Thursday’s high of 106.86, I will be very cautious of this market.

November 8, 2009

Well, our stop at 103.10 was hit on Monday. It was an unfortunate
fill because the low for the week was 103.08. Time will tell if
being on the sidelines is the place to be. I will need to see a few
more closes over 107 before a buy signal will be generated. I will
keep you posted.

This is a market in search of direction for its next intermediate
term move. Until the SPY breaks out of its current range bound by
103.00 and 110.50 it is anybody’s guess where the market will go.
I am seeing the development of a Head and Shoulders pattern combined
with a negative divergence in On Balance Volume. To me these along
with the recent spike in Volatility put the odds slightly in favor
of the bears. If something changes to indicate that we should be
looking to get back in, I will send out a Mid-week Update with
instructions on what to do next.

November 14, 2009

The SPY managed to close over 107 every day this week, but has not
been able to close above 110.50. If the market was not already
extremely overbought I would have probably suggested we buy earlier
this week. I am remaining on the sideline for the time being.

The Head and Shoulders pattern discussed last week was negated when
the market closed above the previous high set 10/15/09. On Balance
Volume also managed to move above the previous high. These are
positive developments, but price is king and price is indicating we
have only managed to trade .004% higher than the October high. I do
not find this very impressive at all.

Another indicator that I use quite frequently is Bollinger Bands.
They are a volatility-based indicator with expanding and contracting
bands above and below a moving average. A 20 period moving average
with bands 2 standard deviations above and below the moving average
should contain about 95% of all price movement. Anyway something I
have noticed (or maybe I read it somewhere) is that a close outside
of the bands is a good indication of a strong move in that direction.
There may or may not be a short pullback but the next major move
will likely be in the direction of that breakout. The 3 Period RSI
had 3 readings over 90 this week. Despite this strong showing the
SPY never closed within $1 of the upper Bollinger Band. I see this
as cracks in the foundation of this bull move and this is one more
reason I am going to need to see some more bullish evidence before I
get long again.

November 21, 2009

The SPY managed to close over 111 three days this week, but was not overly convincing.
I would like to see the weakness seen on Thursday and Friday carry over into next week.

The market managed to work its way a little higher before correcting to end the week. Other than a few higher closes nothing on the charts stands out. It has been difficult to watch the market move higher after being stopped out a few weeks back. This has been especially difficult when I see signs around me indicating the economy seems to be making another downturn. Unemployment in my county is over 14% and another wave of layoffs seems to be surfacing. Add to that California’s apparently unfixable budget deficits that remind me of the Titanic. I don’t think this situation will end well, layoffs and or higher taxes are imminent, and neither is good for the economy.

I do realize that the economy does not equal the stock market. How long can the two move in different directions? As difficult as it is I have to let the markets signal when it is time to get out. That time has not come yet. Therefore we will look to get back in when the markets allow us to get in, under hopefully more favorable conditions.

November 28, 2009

The SPY managed to close over 111 only one day this week. The highs for the week are even farther from the upper Bollinger Band. Continued weakness will put the market back in the decision zone. The area that will either offer a low risk opportunity to buy or signal that there is more weakness to come.

The market tested last week’s highs and was unable to do much. Then came the news late in the week that Dubai World may default on $20 billion in loans. This brought up concerns of other plausible defaults. I am not sure where all this will lead. This could be the beginning of another wave of bad news that takes the markets down. How the market reacts when it reaches support will be the first indication of what may be coming. That may happen as early as this week or it could take a month to develop. I will be watching the markets and letting you know if action needs to be taken.

Stock Market Timing vs Buy and Hold II

Posted: July 11th, 2009 | Author: | Filed under: Uncategorized | Tags: , , , , , , , , , , , , | No Comments »

There has been a lot of press lately about the buy and hold philosophy. Based on the name of my site I think you know where I stand. It is also more than a bit ironic that I would quote Ben Graham, but some quotes are timeless. I do believe in the underlying principles outlined in his classic Security Analysis. Somewhere along the line value investing got confused with buy and hold. The confusion probably started when Wall Street still needed to sell stocks when they were not a bargain by any stretch of the imagination. That is probably when people started referring to Warren Buffet as a buy and hold investor. Wrong, he is a value investor that is well aware of the tax ramifications of an actively managed taxable account. Value investing is best suited for your taxable brokerage accounts. Most investors probably lack the time and or dedication that are required to research enough stocks so you can have a well-diversified portfolio. The vast majority of individuals have the bulk of their investments in some type of tax deferred retirement account. That is why my focus here is on market timing in your tax deferred accounts.

All that being said, I have been getting a kick out of the arguments made by long-term buy and holders.

Some of the major defenses of buy and hold have a hint of market timing to them. If you are buying cheap and selling dear is that not a form of market timing. Your indicator du jour might be a P/E ratio instead of a moving average but you are still making a prediction about the future price of an individual stock. The funny thing is you would be hard pressed to find a long term buy and holder that thinks he or she is timing the market. I would venture to guess that they would loathe the thought of trying to time the market.

I also see a lot of people saying that because there is so much talk about buy and hold being dead that is the exact reason it is probably not dead. There may be some truth to this in that it is best to probably zig if everyone else is zagging. However that in it self a form of market timing based on sentiment. I wouldn’t buy something just because it is out of favor. For me I need to see positive fundamentals and good price behavior. I am sure at some point in time, on its way to zero, the sentiment for Enron may have made it look like a good contrary investment.

Professional fund managers can’t seem to beat the market. Well this is true but in their defense how many mutual funds are allowed to be 100% in cash. I would venture to guess not too many. It is not their job to time the market their job is to pick the stocks that will perform best relative to the market. However if the market goes down it will tend to take most stocks with it. Lets not forget the fees associated with investing in mutual funds. From the starting gate mutual funds start out in the whole relative to the overall stock market.

Market Timing is voodoo. I get a kick out of the fact that just because someone wins a noble prize in economics, their theories become widely accepted. Then everyone using that noble prize theory somehow thinks they are smarter than the market. Maybe people feel better if they lose money investing along side a bunch of PhD’s. I for one do not think I am smarter than the market but I will let the market show me the path of least resistance. If and when market timing becomes widely accepted the market will probably be a very different animal.

I am sure there might be something I missed here but I hope you get my point. There are times when the risks associated with being in the market are out weighed by any short-term benefits of being in the market. I think this is one of those times. State budgets across the country are bleeding red. They will have to raise taxes or layoff state workers, neither of which will stimulate the economy. I could see the writing on the wall when the housing market collapsed where I live. I can’t for the life of me understand how so many economist and market analyst couldn’t see this coming. Then they were in a state of denial for the first six months of the downturn. Please don’t expect them to know when this will end either. I don’t claim to know when it will end, but I will say I don’t think it is over yet.