I'm in the mood to lecture tonight. (Barbara is excused since she has heard my lectures over the years/smile.)
Overview.
November burst forth with euphoria and now leaves some with buyer's remorse. Consider that every investor and trader who decided to buy at the November 5 high is now under water. The unknown commentator on CNBC who said "you ain't seen nothing yet" may well have been right but not in a good way. If there is one take away point for readers this evening, it would be that you must never buy giddiness. Odds are, you will regret the move. It is always better to buy fear.
The high for the month on the S&P 500 Index was 1227. Unfortunately, high speed computers were set to sell the Index at this level due to something called a 0.618 % retracement rule. In simple terms, professional hedge funds and institutions assume that down moves in the market will retrace part of the down move before moving down again. While the 0.618% retrace level of the October 2007 - March 2009 down move in the market was exactly @ 1228, I do not recall any warnings to the public on November 5 that it was a very, very bad time to buy stocks. There were no sober commentators on CNBC urging caution. I saw no newspaper headlines about peril ahead.
Some things never change.
Today was a bearish day. The market opened @ 1182.96. The low was 1174,14. The high was 1187.40. The market closed @ 1180.97. This was bearish for several reasons. The close was lower than the open. This condition is a sign that the pros were selling to the retail public throughout the day. The Relative Strength Index (RSI) closed at 45.97. This is not a good time to buy. Good times to buy are when the RSI readings dip below 30 on a daily chart. The MACD line continues to show a down trend in the market. Remember that the trend is your friend until the end. The MACD Histogram remains negative. The stochastic reading is not in unsustainable single digits. Instead, the readings are 24.79 and 30.08. Not a good time to buy. Most amazing to me would be the sheer percentage of bullish investors. The Bullish Percent Index reading for the S&P closed at 77.20. That's far from a good time for buying.
In short, lower prices are ahead.
Fundamentals.
I am concerned that the market is reacting to bad news. This reaction tells you that the character of the market has changed since August 25. Back then, no one cared in the least about Irish debt or Portuguese bonds or the Spanish debt crisis. Now investors are beginning to care. That is always your cue--when bad news came out and the market ignores the bad news, then buy stocks and load up on the C Fund. It is a Bull Market and a good time to be in stocks. But when the character of the market has changed and bad news matters, then you should step aside from the C Fund and seek the safe haven of the G Fund. Do not hope! Please! I have learned the hard way that hoping for the market to turn around will not make the market turn around. Just step aside for a while. There will always be a good time to buy in the future and, probably, at lower prices too!
The drop in the Euro Dollar matters as well. Its another sign of caution.
Our Philosophy.
In our investment club, we are 100% in the C Fund when the market goes up. We are 100% in the G Fund when the market is going down. Its as simple as that. If we were now in the C Fund, we would be stressing what the month of December might bring. Do you remember the May 2009 Flash Crash brought on by the Greek debt crisis? The October 2008 Crash brought on by Lehman Brothers? The March 2008 Crash brought on by Bear Stearns? The February 2007 Crash brought on by the Chinese stock market crash? Alot of investors lost alot of their retirement funds because of these events.
Well, we had had enough. Beginning in August 2008, we decided that it was more prudent to step up to the plate. We would actively watch the market and, when it was a good time to buy, we would go 100% into the C Fund. Why be shy when the market is poised to go up and you can profit from the best September in 79 years? From the best March since the Great Depression? Conversely, if the market is overbought and troubles are brewing in Europe, why stick around in the C Fund and face maximum exposure to loss when you can sleep like a babe 100% in the G Fund? You're not losing money while others are losing their minds, and, you have conserved your hard-earned cash so that you can take full advantage of the next good time to buy.
At the risk of repeating myself, that's how money is made. That's how winning is done. As my seven-year daughter just sang to me, "You've got to believe in something." Buy the fear. Sell the greed.
Good evening,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
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