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Market Timing And Our Best Stock Picks Captured a 14.5% and 11.84% Gain In The Model Portfolios During The Recent 5 Week Up-Trend
By Geoff Green | May 9, 2008
Stock market trend analysis, market timing and our best stock picks enabled the Prudent Portfolio to capture 14.5% and the Aggressive Portfolio to capture 11.84% in profits in the last 5 weeks of trading.
These gains were created just by following our stock market timing rules in conjunction with our best stock picks list.
For the most part these portfolios run by themselves with less than 30 minutes a week effort to adjust stop orders.
The Prudent Portfolio had 79% winning positions, with 14 total trades this portfolio had 11 winning and 3 losing trades.
The Aggressive Portfolio had 75% winning positions, with 13 total trades this portfolio had 11 winning and 2 losing trades.
Both model portfolios are now 100% cash and will remain in cash until our market trend analysis shows that it is once again safe to purchase stocks long.
The recent stock market up-trend that started in early April has been getting weaker over the last few weeks, finally showing a real probability of dropping through the lower up-trending channel that started in mid-March.
This renewed bearish action is to be expected based on a variety of factors. Let’s take a look at the Wilshire 5000 stock market index to see what we can expect in the future.
Looking at the daily chart above, several bearish observations can be made.
Stock prices handily rose above the 50 day moving average in a strong uptrend that started at the March lows which is a bullish move by itself but prices have hit a lot of resistance recently. Strong resistance at the 14,250 level is just about the same level as the 200 day moving average.
Trading volume has been decreasing which shows a lack of conviction by the big money players - and we all know it’s the big money players that drive stock market trends.
The 200 day moving average is a strong indicator of stock market trends. If prices are below the 200 day moving average you can generally assume that prices will continue in a downtrend. Adding more weight to the down-trend conclusion is that the 50 day moving average is also below the 200 day moving average.
In addition to the moving average analysis, price rallies quite clearly were getting weaker since mid-April. You can see on the chart that the up-trend in prices failed to reach the upper trend line and are now resting on the lower trend line with other technicals getting weaker.
The Stochastics, MACD, RSI and the ADX indicators are all foreshadowing price weakness at least in the short term.
If this next move truly plays out to be bearish - and I think the odds favor a bearish move - stock prices could easily move to the lower Bollinger band at around 13,500 on the Wilshire 5000 index. This type of move could trigger more bearish action that could test the March lows at around 12,750.
Lets take a look at the weekly chart.
Market analysis on the weekly chart is pointing to the same bearish market trend conclusions.
This last weeks stock market action shows up on the chart as a bearish engulfing action.
This type of chart pattern is a strong indicator that more bearish action is to be expected - at least in the short term.
Although the indicators on the weekly chart are in bullish positions they are getting weaker and point to a general weakening of prices.
Besides price and volume action I will watch the indicators for confirmation of a renewed bearish move. I expect the Stochastics indicator to cross the trigger line and drop below the 80 level and the MACD to accelerate it’s slowing and start to reverse.
The RSI is struggling to get above 50 - a clear indicator that the bearish environment will continue at some point.
Our model portfolios will remain in cash until I see how this battle between the bulls and the bears plays out.
When the battle is over and I can identify a profitable investing trend we’ll start investing again in our best stock picks list.
If you would like to be notified when it is safe to own stocks again, please enter your contact information in the right margin.
Topics: Bollinger bands, bearish, stochastics, stock market strategy, technical analysis, trend analysis, volume |
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