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Trading Lessons

A Safer Time to Buy Stocks is Coming Soon!

Stock-Markets / Stock Markets 2011 Jan 20, 2011 - 07:44 AM GMT

By: Bob_Clark

Stock-Markets Best Financial Markets Analysis ArticleBeware the Ides of March.  Good advice to Caesar but is it good for stock market investors as well?  Probably not.
The thing is, most years the Ides of March is actually a good time to be buying stocks.   
 
It is coming
The time to beware, is coming up soon and that is what I will be looking at today. 


As you know if you get my daily Emails, I have been very bully.  Believing that we would get a Santa Claus rally and that it would carry through into the new year.  We made a lot of money following that scenario.  Many of the technicians that use indicators, have been calling a top for the last month or more as their indicators continue to deteriorate.  They have missed a nice run.  They have done better than the fundamental traders though. Many of them have missed the whole up move entirely.  I see that some of the most bearish of them are now conceding that this year will be strong.  Yikes. 

Over loved 

Below is a chart of the American Association of Individual Investors.  I included it for several reasons.

First, it shows just how over loved the general markets have become . The other sentiment data is confirming these high readings.

The second reason is to graphically indicate (with orange dots) the Ides of March low, on ten years of data.  That is a pretty reliable track record.

Thirdly, I highlighted the third year of the presidential cycles that occurred during those ten years.


 
March cyclicality 

Below we see a 4 year chart of the S&P 500.  I want to focus on the March time frame, so we are prepared before we reach it.  That way we can be ready to load the truck, instead of getting tangled in the usual Internet mass confusion.  Where many of the analysts will be chattering about the next crash being under way.

I marked in the March lows going back a few years.   It has it's own cyclicality, as you can see on the chart.  That is because February-March traditionally creates a good sized dent in the bull's pocketbooks.  One thing to notice is that these dips usually take approximately a month to unfold.  Remember, we are in a bull market now and that can change the amount of time we go down. In bull moves we tend to top later in the cycles.  The name for such price action is late translation. If we top late, we do not have as much time for the down portion of the cycle.

I also drew in the 4 month trading cycle lows (blue dots).  When to expect the next one is a little fuzzy because of what happened in the October to November time zone.  We expected the 4 month low around the 1st of November.  It seemed to come in late October, but there was a retest of the October low in mid November.  The November low looks more like a typical 4 month low, so once again, the cycles blur.  We do know that one of the two was the important low, by the way we have bolted higher. 

In the 4 month trading cycle, the down portions into the low often last approximately 1 month as well.
 


Attainable target

The 1400 level is a good target for this up leg, but getting there before we turn down into the March low, seems a bit of a stretch.  The consensus is so tilted to the bull side that I can not imagine the Fat Boys being able to stomach seeing the peons make anymore money.  I have sketched in how I think the dip will play out, with a question mark to remind us that a blow off spike up first, is a possibility.

There is also the possibility that we bottom before the mid March time frame, like we did last year.  If that is what the Fat Boys have planned, then we will turn down earlier. Any time now it is a possibility. I have a feeling that we will go back to making the lows in March but we have to keep an open mind. 

I always put in the warning that things can still go awry. We must trade and invest responsibly, by using some form of risk management.

Bottom line-the odds look good

This is the 3rd year of the presidential cycle and everyone knows it. History tells us that the odds of a down year are extremely low.  If you are a fund manager, why would you sell. Just buy more on weakness. There seems to be lots of money around, so that should not be a problem. What I mean is, we should not see a liquidity squeeze. That is one thing that could kill the bull.  You can see how the "buy the dips" mentality will work throughout the year.

Waiting 6 weeks improves the odds

I expect a little turbulence as the month progresses,  a new high in early February would be ideal.  That is when things get interesting and when I will be looking for a sell trigger. Let me add that I am always looking for triggers, but will be particularly vigilant at that time.

Keep in mind that we can top at anytime when the bullish consensus is this extreme.

We should hold 1200 when we drop, due to the fore mentioned third year rule.

I wrote this article on the weekend, notice that we are already starting to see some turbulence.  1300 should be a tough level.

This may be a strong year but there will be times when the Fat Boys come in and clean house.  Taking advantage of those clean outs will greatly enhance your balance sheet this year.

If you have missed the run, for whatever reason, then the coming low will be a good place to stick a toe in the water.

It does not have to be all or none.

Trading or investing should never be financial life or death.  There is no need for clenched teeth and white knuckles. Sleepless nights and praying for Divine intervention.

By simply learning how to manage risk,  you will be much more comfortable entering the markets.  How do you manage risk?  I teach the trigger points that the Fat Boys use to place their orders.

The key is to know in advance what should happen at a specific point.  If it does, you are on track, if it does not, then you know something is wrong and you step off, or stay out.  

Technical indicators do not work, neither does fundamental analysis. The Fat Boys use both to trap investors. It gives them the other side of the trade, allowing them to enter positions. 

I offer one on one, learn to trade courses. There is also a powerful video set available. Both will get you on the right track in the new year.  It is the same track the Fat Boys are on. They control the markets and if you are not with them, then you are a victim.

Please come to my site and join.

Bob Clark is a professional trader with over twenty years experience, he also provides real time online trading instruction, publishes a daily email trading advisory and maintains a web blog at www.winningtradingtactics.blogspot.com  his email is linesbot@gmail.com.

© 2011 Copyright Bob Clark - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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