JR Snell Capital Management, LLC

For everyone who is anxiously awaiting a new “buy” signal for the stock market, I still have no news. Things, believe it or not, are about the same as my last post about market timing. For the more technically-oriented investors… or those that feel like they need a little more detail about the “whys” of what’s happening at the moment, here is the complete description of exactly where we are.

Click to enlarge

The situation at present is that we have broken a minor, valid downtrend line (yellow downtrend line) and then gone on to form a couple of minor, higher lows (green up arrows). Recently, we’ve hit our heads on the 10 week moving average (blue line). The last time that this happened, it spelled trouble for the markets (yellow down arrows).

Today’s million dollar question is how this will resolve. Are we setting up for another leg down or will we hold the line and ultimately move higher? As it is right now, I can say that we are firmly on the fence.

Also, don’t forget that I’m talking about a short to intermediate term possible turnaround here. Everything needs to be considered in the context of an overall bear market as I have been discussing.

I’ll let you know when that changes.

market timing, markets, s&p 500, stocks

I’m continuallyamazed by the number of advisors and investors that have been “brainwashed” into believing that buy and hold investing is the only way to invest.

I prefer to call it “buy and HOPE” investing, which I feel is a little bit more descriptive of the style. When you buy and hope invest, you are ASSUMING that all will be well, and profitable… just in the nick of time (i.e. the day before you need it).

In my humble opinion, making these kinds of assumptions is REAL RISK. The idea of having things that I cannot (or will not) control shaping my and my client’s destiny… this is far too risky for me and clients don’t want to hear that “odds are” they’ll be OK.

The biggest argument for buy and hope investing that I hear are negative arguments. If you’ve been out poking around in investor-land for any length of time, you may have heard these gems…

1. “No one can time the markets.”
2. “If you would have missed the X biggest up days in the market, your returns would have been [far lower] [non-existent][negative][etc.]“

Here are the translations:

1. “I can’t time the markets, nor do I have the guts to take a stand and tell you when to get out of the markets because I could be wrong and you wouldn’t like me anymore. By following ‘mainstream’ investment thought, I can blame my laziness or my lack of knowledge on the market… Sorry, not my fault.”
2. “As a balance, if you would have missed the X biggest DOWN days in the market, your returns would have been [far better][good][at least positive][etc.]. Not to mention, many times the markets will go through extended [15+ years] periods of flat or negative performance.”

Bottom line… Yes, you can market time. If you’re not afraid of the possibility of being wrong and all you want to do is avoid the BIG HUGE BEAR MARKETS [and that's all a long term investor should ever have to worry about anyway], then yes, you can and should get out of the market when things are setting up to be very bad for your portfolio. I’m still baffled as to why your ‘run of the mill’ advisor wouldn’t suggest this to his clients. Maybe the operative word is ‘run of the mill’, eh?

OK… back on topic. Here’s how it’s done: Pull up any chart of the S&P 500, change the period to weekly, draw a 10 week exponential moving average and a  40 week exponential moving average and get out of the market when the 10 week goes below the 40 week. Simple, effective and long term. Make a point to look at the chart every now and again [maybe monthly, more often if the lines look like they might soon cross over].

Also, I have a chart that I’ve set up on StockCharts.com that I use for this purpose. I’ve saved it off on my desktop as a bookmark and I look at it every now and then to remind myself that, at the moment we are in a bear market… and I will know exactly when we are probably not any more.

market timing, stocks