Continuation from yesterday……(Buy Low, Sell High, Go Short & Cover)

Warning Signs:

• Most long-term bull market cycles do not last longer than 5 years. Today’s bull market has been in existence since about March of 2009 or 5.5 years. Suggesting that the market might be topping.
• Monthly charts show a possible period of distribution that started in January of 2014. In other words, the market has shifted from a fast moving bull market into a flat market. Suggesting a possible near term roll over.
• Short-term charts suggest that the market is unable to go much higher. Let alone continue on with its bull market. Therefore, a real downtrend shift becomes likely here.
• A massive fundamental overvaluation bubble reminiscent of 2000 and 2007 tops.
• A secular bear market of 2000-2017 is scheduled to complete in 2017.
• A mass psychological delusion suggesting the impossibility of a bear market at this juncture.

Determination:  Even thought all technical indicators (short-term and long-term) are still positive at the moment, the market is at a very dangerous juncture. In fact, given the warning signs above, any analyst worth his salt should conclude that the market is likely to be at the top here.  That the market is distributing prior to its eventual roll over into a full out bear market.  Not a simple correction.

As you can see, this simple analysis yields exactly where in the cycle we are and what we should do next.

Recommendation:  Any investor here should go on the highest level of alert in anticipation of a possible roll over.  All investors should be ready to liquidate their long positions at a moment’s notice and go short if their trading/investing profiles allow for it.

The following recommendations would apply to specific risk tolerance levels.

• Low Risk: Get out of the market by liquidating all of your long positions. Remain in cash.
• High Risk: Get out of the market by liquidating all of your long positions. Remain in cash in anticipation of a market roll over.

Upcoming investment recommendation:

• Low Risk: Stay in cash while the market corrects. Preserve your capital and buy stocks at 30-50% discounts at the next market bottom. Profit from the next bull cycle.
• High Risk: Be ready to go short as soon as the stock market confirms the start of a bear market leg.

The great thing about the approach above is it works in all market conditions. For instance, investors who are “long only” today or those who are unaware of our current cyclical location would simply hold their positions throughout the duration of the upcoming bear market. Just as they did between 2007 and 2009. Most likely selling at the bottom of the range as the amount of psychological distress associated with losing 30-50% will reach its pinnacle right around the market bottom.

That is why most investors do the opposite of what they should be doing. Instead of selling out and going short at today’s market top, most investors will go long due to their general unawareness, long only bias, faulty technical indicators and to be honest, stupidity.  Holding it for the duration of the decline and getting out at the bottom.  Even worst, many will go short right before the market bottoms. In other words, they will buy high and sell low.

To Be Continued Tomorrow……

The Reason Most People Buy High and Sell Low Google

Continuation from yesterday……(Why You Should Know Exactly Where You Are)

Identify The Cyclical Composition Within Your Time Frame:

Attempt to identify exactly where you are in the above mentioned cycle. Bottom, bull, top or bear. Typically, the longer the time frame you are working with the easier it is to identify exactly what part of the cycle is working in the market at the time. If you are working with short term cycles, simply understand that multiple short-term cycles will complete themselves within the confines of longer cycles. For example, one long-term completed cycle on the Dow would be a bull/bear market of 2002-2009. Yet, it was within the confines is this larger cycle that multiple short-term bull/bear moves developed at the same time. In fact, a day trader might see as many as 4-5 small daily cycles develop on a daily chart.

Identify Where In The Cycle You Are (bull or bear).       

Based on the time frames you working with, determine exactly where in the cycle you are. For instance, if you are working with weekly and monthly charts, identify if the weekly/monthly cycle is in a bull or bear market or distributing/consolidating.

Apply Other Time Frames For Confirmation:

Consider other time frames before deciding where in the cycle you are.  For instance, if you are trading based on daily charts it would be helpful to consider what weekly and monthly charts are indicating. While the market might be in a 5 day bull run or a bounce, weekly and monthly charts might suggest you are in the midst of a bear market.

Doing all of the above should give a fairly good indication of where in the cycle you are coming in. Allowing you to take an appropriate trading position in the process.

For example, today’s (September 16th, 2014) market environment presents us with a perfect analysis opportunity for the Dow Jones.  Here is the sample analysis to show you how to determine exactly where in the cycle we are and what positions or entry points are optimal.

1. Desired Trading Time Frames:

Monthly and weekly.

2. Cyclical Composition Within The Market On All Time Frames:

• Long-Term: Today’s bull market started in March of 2009. The long-term term trend remains bullish for the time being. All markets are near all time highs.
• Intermediate-Term: Monthly charts remain positive for the time being.
• Short-Term: Weekly charts remain slightly positive. Although signs of possible distribution and downtrend shift are present.

Warning Signs:

• Most long-term bull market cycles do not last longer than 5 years. Current bull market has been in existence since March of 2009 or 5.5 years. Suggesting that the market might be topping.
• Monthly charts show a possible period of distribution that started in January of 2014. In other words, the market has shifted from a fast moving bull market into a flat market. Suggesting distribution.

To Be Continued Tomorrow……….

Buy Low, Sell High, Go Short & Cover Google

Continuation From Friday……(The Circle Of Profits)

Rule #4: Know Exactly Where You Are At All Times.

By default, you should know exactly where you are at all times. Although it may not be as easy as you might imagine, particularly, if you are new to the whole process.

More or less, the composition of all stock moves can be divided into four distinct parts.

1. Bottom formation (accumulation or trauma).
2. Bull market.
3. Top formation (distribution or blow off).
4. Bear market.

Now, the composition above gets fairly complicated once we begin to add multiple time frames and structural patterns to the underlying moves.

For instance, the overall stock market might be in a 10 year bull market, yet it is about to suffer though a massive 50% correction. Or we might be in a 17 year secular bear market, yet the overall stock market might be ready to stage a massive multi-year rally. Just as it did from both 2002 and 2009 bottoms.  Further complicating the matter are the different size cycles developing in the market at any one time.  Ranging in duration from hourly to decade long. In fact, it is their eventual combination (long and short cycles) that causes the final stock market composite we see on a daily chart.

Is there a way to tell exactly where we are in the overall composition?

Yes, there is. Unfortunately, such a method cannot be described in any reasonable manner, let alone in this short book.  It can only come through years of experience and a tremendous amount of work.   Particularly, when the above analysis is applied to individual stocks.  Not to tout my market timing service, but you might want to take a look at the subscriber section of my website if this type of an analysis is of interest to you.

For the purposes of this book, we can apply the following tools or shortcuts.

Know What Time Frames You Are Working With and/or Trading:

If you are day trader, chances are, you are trading based on weekly, daily, hourly and minute charts. If you are more interested in catching larger moves, as I am, it is highly probable that you are trading based on both long-term and short-term charts. Whatever your situation might be, the first step is to define, without a shadow of a doubt, what it is that you are trading.

In other words, if you are day trading based on your daily charts, stick to that.  If you are trading based on weekly or monthly moves, continue on with that approach. Do not move between various time frames until and unless the move is permanent.  Why? It is highly probable that constant shifting between different time frames will lead to multiple errors and substantial losses.

To Be Continued Tomorrow…….

Why You Should Know Exactly Where You Are  Google