Below is a segment of the spreadsheet I update every day after the market closes. One of the GMI indicators (table below) uses the Successful New High indicator, which measures the percentage of stocks that hit a new high 10 days ago that closed higher now than they did 10 days ago. Nicolas Darvas had said that when the stocks that he was buying at new 52 week highs started to falter it told him to exit the market. That is why I calculate the Successful New High indicator each market day. I also calculate a Successful New Low indicator which measures the percentage of stocks that hit a new low 10 days ago that closed lower today. These two indicators are the first two in the spreadsheet below. Note that on February 21, the two indicators were equal at 55%. Almost all of the prior days (not shown) there were more successful new highs than new lows. Since February 21, every day there have been more successful new lows than new highs. in fact, since February 27, 80% or more of new lows were successful. I use the word successful because it tells me that if I had shorted stocks at new lows, I would have made money 80% or more of the time. Just as one can make money in an up-trend by buying stocks at new highs, one can profit in a down-trend by shorting stocks at new lows.
Note also the NH and NL columns which show the preponderance of stocks hitting new lows versus new highs since February 24. Next to those columns is my QQQ short term trend count, now at D-19. The change in the QQQ short term trend occurred on February 25, after a record up-trend (since 2006) that lasted U-91 days!
The GMI remains at 0 (of 6) and on a Red signal. The GMI turned Red on February 26.
I began this blog in 2006 after watching the media pundits and financial advisors lead the trusting public into the 2000 abyss after the internet bubble burst, while I was safely in cash. The same thing happened in 2008 and then again now. I do not advise people but merely report my actions. This site is free and I tell all that my musings are worth exactly what they paid for them. Nevertheless, I hope some of my readers have benefitted from my writings about exiting the market in February.
If it is impossible to time the market, then why have I been out of the market in bad times and back in during the good times? Just luck? As someone once replied, the harder I work, the luckier I get. The key for me is to ignore all of the talk about the market and to just watch what it is doing. I have simple criteria that have been summarized in the GMI table below, that keep me on the right side of the market’s trend. This is the strategy I teach my undergraduate students. With the GMI=0 (see Table below) why would I be invested long?
All persons with tax deferred IRAs and 401 (K) accounts can exit the market anytime, transfer into money market funds, and go back into mutual funds or equities later, without tax consequences. I know some employer plans limit market timing, but they usually let one exit and enter as long as it does not occur too often I(check your plan’s rules). So when things begin to look bad, I begin taking money off the table. I have been in 100% cash for weeks. After the GMI flashed a Red signal on February 26, why would I ever be invested long?
The other nonsense the pundits promote is, no one rings the bell at the bottom. Don’t get out because you will mss the bottom. I do not care if I miss the bottom or the top. There is plenty of room to make money in between. I do not care if the market rises 5-10% now without me. I am trying to avoid much larger losses. I will get back in after my indicators suggest that a new up-trend has begun and I will do so gradually, in stages, at ever higher prices. I will post here when I begin to re-enter.
This decline and the resulting low interest rates on savings vehicles will decimate my fellow boomers’ wealth. I hope those who did not escape this storm have the years necessary to recoup their money and a comfortable retirement. When will this decline end? No one knows.
The technology changes but trading is human behavior and human psychology never changes–greed and fear, euphoria and panic. People must learn a set of rules that help them to take small losses so as to avoid the large ones.
While I do not predict bottoms, this weekly chart of the SPY suggests to me the beginning, not the end of a Weinstein Stage IV decline. Note the huge weekly selling volume in two of the last three weeks. The SPY has only closed below its critical 30 week average (solid red line) for three weeks. Bear markets often last 10 months or more and we should not be misled by the speed of this decline. We could see much more… (then again, T2108=3%)