October 23, 2018

Market Timing is Dead

If irony evades you, you are in the majority, heads up.

Contrary Thinkers know,” the market programs the investor to do just the opposite of what he should be doing.” Contrary Thinkers also know that investors are not hard-wired to fail at achieving alpha, like so many others, would like you to believe. Its all a matter of being a Contrarian.

In the first decade of the new century advisors and managers witnessed one continuous bear market from the peak in January 2000 into the March 2009 low.

That correction of the Clinton bull market from the final pivot in December 1999 until the March 2009 low provided a ten-year base for the today’s Great Bull Market, but it gave risk managers a sense of proportions and taught the value of volatility modeling. The new century bear gave the capital manager a clear insight into the meaning of hyper correlation and how time can play on equity returns.

It was not until 2013 that the major averages broke above the peak in late 1999 and sustained. The NYSE A/D line did not move above its high posted in late 1999 until July 2007, buy only for a few weeks. Again providing clues regarding how long investors may have held onto stocks before a positive return.

The experience in the first ten years of the century witnessed the small-cap stocks recovering only .382 of the first cyclical bear market leg into the 2007 top followed by lower lows. If you were not a market timer, you did not do very well.

Today, after ten years of bull market, one that equaled if not exceeded the Clinton Bull market, the situation suggests the rejection of a passive management tactic.

Now you take all the technical reasons Market Map and Volatility Reports have to provide since January 18, 2018, the outlook is for more than just a “healthy” correction. That “healthy” idea is more akin to wishful thinking at the verge of a ten-year bear market, a period where the trend will not help you but market timing will.

Change of trend dates (COTs)

While I am publishing the Globex Dow is down 260 points sitting on the recent October 12 lows. A break below this level targets 24,600 and would very likely be the expected S-T low in the change of trend date projected for October 19.

The other majors have similar setups where new lows would move many of the trend followers into the bear camp, at least for the intermediate term. From an EWT point of view, a breakdown by the Dow and the S&P is coming out of a 4th wave triangle. On that basis we know, a break to new lows both confirms the larger downtrend and a short-term low is nearby. A move to the 24,600 area should be short-lived leading to an S-T recovery into the election.

The investor Nikkei 225 looks like a breakout trade. A simple strategy is a move above the base is a buy signal, and a move back into the base is a failure to exit and profit targets in the mid to high 40’s

Great and Many Thanks,

Jack F. Cahn, CMT
A Thinking Man’s Trader Since 1989,

Copyright 1989-2018
Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA 92264 USA. 800-618-3820 or 25/1 Poinsettia Court Mooloolaba, QLD Australia 4557 614-2811-9889

 

 

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