We’ve added a new tool to the website. You’ll now notice that we have long term and short term market trend alerts. We added this so you can keep things in perspective- the underlying and longer term trend can be up (green thumb up) while the shorter term trend can be correcting/down (red thumb down).
What prompted me to do this was partly all the howling from perma-bears every time the market underwent a healthy correction. What’s a perma-bear and why can they cost you a lot of money…?
Some market-watchers are obsessed with values only. They never once check a chart or care at all what the actual price of a stock is. They think they know what a stock is worth, not the market. When a stock breaks upward and soars up, they see that as a sign to sell instead of a sign to buy. And that, I suppose, is human nature.
While people buying that stock (or market) enjoy the party, locking in profits as they go, the perma-bears moan that the stock is too expensive. Eventually, when the bull run is over and the market/stock corrects, they cry, “You see! I told you it was too expensive! I was right, not the market!”
Yes, meanwhile savvier traders exited with handsome profits as their trailing stops got triggered…
If you scream “BUY!” or “SELL” for long enough, eventually you’ll be able to say you were right, because the market constantly fluctuates. But you’re really only a hero if you can tell people WHEN to buy and WHEN to sell. And you can’t do that by arrogantly proclaiming what you think a stock is worth and to hell with what the millions of buyers and sellers in the market place think. Eventually you may be proven right, but how much money did you lose (either opportunity loss or actual loss) from having lousy timing?
The only way you can have any remote clue of WHEN is by listening to the price action of the market/stock. Argue with the trend, however right or wrong the trend is, at your great peril.
I am neither a bear or a bull. I am what the market tells me to be at any given time. If this was a war, I’d constantly switch sides depending on who was winning (and get disgraced as a result). That may not sound very clever or brave, but I don’t want to be clever or brave, I want to be wealthy. What do you want to be?
Right now here’s the deal. First the benchmark S+P 500:
The perma-bear “I-told-you-so” camp had a field day recently as the market corrected, but this chart says it was just another correction in an ongoing upward trend (see the bounce to the far right off the long term average price line- curvy blue line). You would have seen our short term market trend alert turn red but while our long term alert stayed green.
I hope the bears didn’t put too much money down on their call. Or maybe they don’t have any money left to play with…
The S+P 500 is not (yet) telling me that this bull market is over. ALL bulls die so that that new bulls can be born, but this chart does not portend such an event yet.
Next, the Nasdaq:
I warned in this column two weeks ago that I would not be happy if the Nasdaq violated the long term price average (curvy blue line), and it did in fact do that, as you can see, but has since recovered somewhat. It’s critical that it stays above the psychological and technical 4,000 mark.
But that damage has been done, and the long term price average of the Naz is starting to flatten out because of it. I said at the very start of this year that I would be on the sharp look out for any change in the long term trend line, and this one troubles me for the longer term. This has been a long and strong bull market so I can’t imagine it ending in a flash, it will come after a long flattening out of the trend. This could be the beginning of such a flattening for the Nasdaq at least. This flattening out is typically accompanied by the price fluctuating above and below the long term price average. And that could go on for a long time, but often it’s the breeding ground for the bear.
So perhaps the Nasdaq is our canary in the coal mine this time around. I’ll keep watching closely, and keep you advised. But until the market says otherwise, there’s more money to be made from the bull. And when the bear comes we’ll make money from that too. But if you stick too religiously to one camp or the other (through ego) and not listen to the actual market, your arrogance will cost you dear. Ego has no place here. And if you disagree, let the market teach you this lesson the hard way.
Best,
Jim.
