The Reason Most People Buy High and Sell Low

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……