Is This Type of Stock Market For You? - Mike Swanson

Transcription

1 Stock Market Barometer Quote of the month: Investors should recognize that Euroland s problems are global and secular in nature; it will be years before Euroland and developed nations in total can constructively escape from their straitjacket of debt. - Bill Gross of Pimco The Most Influential Financial Newsletter Read By Over 500 Hedge Fund Managers and Thousands of Elite Investors ~ December 1, 2011 Is This Type of Stock Market For You? - Mike Swanson In the November issue of this newsletter I told you that hedge fund managers and institutional investors as a whole have been badly underperforming the market this year. This put them in a position to have to chase the market by buying stocks if the market were to put on a nice rally before the end of the year. At the same time though, we entered November with the market in an extremely overbought position following its big rally in October. That meant it would most likely go sideways that month with some sort of move higher at the end of November or beginning of December. Not only did the price action in the charts suggest this, but so did historical trends which record December and January as among the most bullish months of the year for the stock market. So bottom line I wasn t looking for the market to do much in November, but was looking for some sort of a move higher in December and with yesterday s coordinated money printing action by the world s central banks it now appears that this is indeed likely. If you missed the news the DOW rallied 490 points yesterday after world central banks announced that they would make it easier for banks to make temporary dollar loans called liquidity swaps. They responded to

2 2 strains in European interbank lending due to the European debt crisis, which have caused rumors that some of the largest banks in Europe are in trouble. This bold move was designed to draw people s attention away from such rumors and make them focus on the money printing of central banks and one word COORDINATION. And make them feel the fear of missing out on gains. The fear that will drive institutional investors to buy stocks if the market continues higher without any regard to fundamentals or valuation or any focus on the business prospects of the companies they buy into. Instead they will obsess over what truly matters to them, which is the fundamentals of their own business. Their biggest fear is the market going up without them, because that will make them lose clients. That fear is one of the things that helped cause the subprime mortgage crisis. And it will never go away. But this is all news and background stuff and it s easy for an investor to get lost in the forest. It s best just to think of this as nothing but yet another bailout band-aid. The reality is you are reading this for one thing. To make money. To do that in the stock market you have to do two things - you have to know yourself and adapt to the market trend. That means you have to recognize it! Few people do that. But let s talk about knowing yourself first. Membership help? To renew or cancel contact: support@wallstreetwindow.com Different types of personalities are drawn to different types of investment styles. You got people who like to buy and hold stocks forever while

3 others like to manically trade in and out of the markets throughout the day. Then there are some who like to swing trade their positions for three to five days. And then you have what I have found to be the most profitable type of trading when market conditions are best for it and that is to hold for six to twelve months, and even longer. 3 I ve tried all of these trading styles at one time or another. Really I started out with a short-time frame of just a couple of hours and as the years went by the time horizon that I focused on got longer and longer. I simply found that longer-term positioning is more profitable and less stressful to do. I really have no interest in sitting in front of the computer all day trying to squeeze little amounts of money out of the market over and over again when I can make a big swing every once in a while that lasts for months. But that is just me. What about you? What type of investing and trading do you like to do the most? Is that investment style suited for the stock market right now? Let s look at the market trend and figure that out. It s easy to tell what type of market you are in. All you need to do is look at the long-term 150 and 200-day moving averages and see where the market is situated with them. In a bull market these long-term moving averages slope upwards and act as

4 support for the market while in a bear market they curl downwards and act as resistance. In a topping market or a bottoming market they tend to go sideways. 4 Well if you look at just about every stock market in the world you ll quickly notice that most of them are well below these long-term moving averages and those moving averages are moving down. And this has been going on for several months now. First the European markets fell apart and then the emerging markets followed. And the US is below these moving averages too, but as outperforming almost all of these other markets. Now the S&P 500, DOW, and Nasdaq all rallied back up to these moving averages in October and then pulled back off of them in November. They are acting as resistance, which is the type of thing you see when conditions are bearish. Now it appears they have put in a short-term bottom and are likely to rally back up to them again this month. That s nice but you put all of this in context and it is clear that we are not in the type of bull market conditions that started in 2009 and lasted till this past Spring. This is a choppy market at best. So look at the action now. The market is likely to rally back up to resistance at these long-term moving averages within the next week or so and then pause again to digest those gains and hopefully make another move higher through this resistance level into the end of the year. But then there is likely to be trouble. First the charts are saying this is no longer a big bull market. Secondly the global bear market is not going to come to an end until the European debt crisis reaches its final

5 5 resolution sometime next year. So after this December rally ends and hopefully it will carry over in January I think it is logical to expect another big drop in the market. Now go back and think about your trading style. A buy and hold trading style really doesn t make much sense now. Like I said I like to buy stuff and hold for at least 6-12 months, but I really cannot do that in anything right now with confidence. In fact if I were to buy something and try to hold it right now for a year I d likely lose money. However, if I wait until the global bear market ends next year I ll get one of the type of buying opportunities that come along only every couple of years and lead to massive gains. So if you want to buy and hold all you have to do is recognize this real-

6 6 ity and be patient for a few months and you can be well rewarded in the end. If you refuse to do this, because of some desperate need just to by stock picks to be doing something then you are likely to get the type of results that desperate behavior leads to. If you like to trade more quickly than this may be the type of market suited just for you. Taking positions now with the idea of selling at the end of year isn t a bad idea. Or waiting for the market to hit resistance at its long-term moving averages and buying on that pause may be a better way to make more clearly defined entry and stop loss points. I ll talk about that in a video if the market lines up like that in a week or two, which I think is likely. But if you do short-term trading you have to recognize that the shorter the time frame you use the smaller the gains from each trade you make are going to be. So you have to be even better at managing risk and willing to cut losses when you do short-term trading. That is what makes it more difficult for most people to do. So as we enter this month of December I want you to think about what type of trader you are. Then I want you to think about what type of trading is best suited for the stock market right now and come up with a simple game plan that is best for you. If you are the long-term investor type and decide it is best to do nothing there is no reason to despair. You can use this month to spend time with your family and to be prepared for the market next year by educating yourself about investment techniques and technical analysis so that you ll make 2012 the best investment year of your life. Way too many people have made 2011 a bad year for them due to lack of thinking and preparation. That s why so many institutional investors who are supposed to know so much are not doing so well this year. We are go-

7 7 ing to make next year an exciting one. As for this month it s a good month for short-term buying and holding. Disclaimer WallStreetWindow.com is owned by Timingwallstreet, Inc of which Michael Swanson is President and sole shareholder. Both Swanson and employees and associates of Timingwallstreet, Inc. may have a stock trading position in securities which are mentioned on any of the websites or commentaries published by TimingWallStreet or any of its services and may sell or close such positions at any moment and without warning. Under no circumstances should the information received from TimingWallStreet represent a recommendation to buy, sell, or hold any security. TimingWallStreet contains the opinions of Swanson and and other financial writers and commentators. Neither Swanson, nor Timing- Wallstreet, Inc. provide individual investment advice and will not advise you personally concerning the nature, potential, value, or of any particular stock or investment strategy. To the extent that any of the information contained on any TimingWallStreet publications may be deemed investment advice, such information is impersonal and not tailored to the investment and stock trading needs of any specific person. Past results of TimingWallStreet, Michael Swanson or other financial authors are not necessarily indicative of future performance. TimingWallStreet does not represent the accuracy nor does it warranty the accuracy, completeness or timeliness of the statements published on its web sites, its alerts, podcats, or other media. The information provided should therefore be used as a basis for continued, independent research into a security referenced on TimingWallStreet so that the reader forms his or her own opinion regarding any investment in a security published on any TimingWall- Street of media outlets or services. The reader therefore agrees that he or she alone bears complete responsibility for their own stock trading, investment research and decisions. We are not and do not represent ourselves to be a registered investment adviser or advisory firm or company. You should consult a qualified financial advisor or stock broker before making any investment decision and to help you evaluate any information you may receive from TimingWallstreet.