What a Week!

This week, the market blew through resistance @ 1219 and set a new high for the year. The market's reaction to the Federal Reserve announcement was very bullish. So, I am a Bull for now.

Is this a good time to buy? No.

Even if the character of the market has changed, it doesn't pay to just buy any old time. Prices are high right now. People are excited. It is always a better move to Buy Low, not Buy High. Prices are most tempting when prices are high. But how many times have retail investors purchased a stock because of excitement and then watch the prices drift lower and drift lower?

What are good times to buy and add to the C Fund?

First, you want to buy fear. You want a situation when investors are fearful and on edge about the future. That is not the case now. Euphoria reigns.

Second, you want to buy at support levels. In other words, find a level on the S&P 500 Index where the price made a previous low and that low held. Why? Its about psychology. The investors and traders at the greatest risk are those who bought the breakout of the S&P above 1219, the former high for the year. I think prices are going higher but there is no demonstrated support yet @ 1219. 1219 must be tested. Next week will be important in this regard. The low this week was 1177. 1177 seems like a natural support for me. Should the S&P 500 drift down to 1177, you can count on two forces. Everyone who bought in a rush this week will be underwater and experiencing anxiety and fear. You will also have the opposing force of patient investors and traders waiting to ride the next move up. Waiting for support allows us to benefit from these two opposing forces.

Third,it doesn't pay over the long run to buy when technical indicators are crazed. The Relative Strength Index (Index) closed at around 78. That's abnormal for an entire index and not sustainable over the long run. The volume this week was not strong enough to support a breakout. According to famous investor William O'Neil, a breakout above resistance should be supported by at least 50% more volume than the previous 50-day moving average in volume. I ran some calculations Thursday night. I was shocked to find that the volume was paltry despite appearances on the surface.

In summary, I am a Bull now. The market is telling me that prices will be heading higher. The market is also telling me that I would be sorry if I bought now. The temptation is oh so great. That's greed. Let's put greed aside. Patience and discipline are better allies. Next week is a new week. Mutual Fund Monday should be up. But the rest of the week will be more instructive.

Prices never go to the moon. Nor do they drop to the center of the earth. We buy when folks fear the drop to the center of the earth.

Wink

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