Monday, October 10, 2011

buy and hold

Since my suggestion to buy on October 5th, we have enjoyed a 7.3% gain.  Ironically if you hadn't been in the market for the entire year and only invested over the past four trading days (from 10/5 through today), you would have blown the doors off 99% of all hedge funds, mutual funds, money management firms who are all firmly planted in the negative for the year.  Quite bizarre to think about, but another good example that timing is everything in the market.

Looking back at the market, if you purchased $10,000.00 in an index fund on November 30, 1998 (13 years ago) ... you would have ... ready for this?? ... $10.000.00.  That's right, you would be at break even.  This also applies if you bought in 6/2001, 12/2004, 9/2008.

So, to really hammer this idea home, if you had your money under a mattress for the last 13 years and then bought 4 days ago, you would have done better with much less risk than if you invested in the stock market the entire time.  angry???   I know I am!  And hence the reason I started down this road 3 years ago.

Buy and Hold is a joke.  timing the market is everything.

With that said , we all know that it is not easy to time the market, or of course our returns would be much more significant, but this is exactly what I have spent my last year focusing on, and if you look back at my blog comments, I feel like I am doing fairly well at it to date.

ok, back to the today's situation... Today was a very strong day in the market, but tomorrow will be important to see if we get more follow through.  Since today was Columbus Day, the banks were closed and as a result trading was very light.  We don't know if the big banks who really 'control' the markets will come in tomorrow and decide that we are over priced and sell into the market, I assume this won't happen, but it certainly could.

Today was the first day that over 50% of stocks were over their 50 day moving average since we started this decline back in July.  A moving average is simply a way to measure where the price is relatively to its' recent past.  taking a 50 day moving average simply means that you average the closing price over the past 50 trading days and compare it to today's closing price.  The 50 day moving average is a very significant level for traders and longer term investors alike, so being over this line (and the 200 day moving average) is important.  generally speaking, if the market is over both of these, we are in a bull market and if it is under these levels, we are in a bear market.  So, to oversimplify having 50% above the 50 day (and 21% above their 200 day moving average) just means we are on the road to recovery and making improvements.

Are we out of the woods yet ... absolutely not.  In fact, we have some very key hurdles to get over in the coming week, which might or might not happen.  The most important of which is that we still have yet to make a 'higher high' since we make the previous high roughly a month ago (8/31 for the sp-500 and 9/20 for the nasdaq).  The definition of an 'uptrend' requires that we have higher highs and higher lows, so until we get a 'higher high', we are not in a confirmed uptrend.  So, until we get a 'higher high', I will remain cautious.

What does cautious mean ... just taking profits periodically as we butt up against levels that previously caused resistance.  So, while I was roughly 80% long on 10/5, I am now only about 30% long now as I have been selling into strength taking profits along the way.  I also am periodically buying more at points of support as well, but after today's close, I feel the risk/reward ratio is not as good since we are getting close to key resistance levels.  So I will most likely wait and watch how the market handles these levels.

It is funny to watch the attitudes change so quickly from "doom and gloom" to "happy new year!!!!" in a period of a few days ... most traders and investors are joyously jumping up and down that the worst is over and "good times are here again" ... I personally choose not to engage in this conversation and just trade what I see.

Time will tell how strong this wave is that we are riding on, but I certainly enjoy watching the market go up vs. the alternative.

Hope you have a great evening, and sleep soundly ... and if you toss and turn at night, maybe consider putting your paycheck under the mattress as I mentioned above ... might be more comforting there than in the market :)

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