Stock Market Cycles: When to buy & when to sit

Stock Market Cycles

90% of traders/investors assume there are only two stages in the markets, buy and sell. There is a time to buy, a time to sell and a time to sit and wait. We are almost at the “sit and wait” stage. During this phase, the overall market pulls back or specific sectors pullback. Sector-specific corrections tend to be extreme; meaning those sectors that pullback generally shed 50% or more of their weight.

The preferred outcome is for the whole market to shed some weight. We don’t care whether the correction is mild or wild, as long as our indicators pullback. If a strong buy is triggered, the preferred course of action would be to back the truck up and buy. A strong buy signal would be triggered, if our technical indicators pullback to the oversold ranges, the trend indicator remains positive and bullish sentiment drops like a rock.

The sit and wait stage breaks the average investor, especially those who assume their degrees, or high IQ, give them an edge in the markets. The acronym PhD stands for Doctor of Philosophy, but we have a better acronym at the Tactical Investor; permanent head damage. As that is what most PhDs suffer from, especially those originating from the field of economics. The only thing that helps when it comes to the market is to have an open mind and understand the basic principles of mass psychology. Technical analysis provides one with the ability to fine-tune entry points. Astute investors know that the most critical stage in the market is the sit and wait stage, otherwise known as the Patience and discipline stage. Overtrading leads to mediocre gains or loss but more importantly, the stress factor surges by 4X if not more. Factoring the extra stress and the damage it causes to one’s health nullifies any of these gains. Astute investors view health as their number one investment; everything else comes in at a very distant second.

Does it matter if you make money in the first four months or the last three months of the year? Those who understand this simple principle can generate 20% a year with almost no effort and very little stress and significantly more with a bit of work. In the end, health is the ultimate investment, lose your health, and even if you have a billion dollars, you are worse off than a beggar in good health. On the other hand, if you have optimum health and just 50k to 100K, you have the opportunity to turn that into a small fortune, but you are off to a good start as you still have your health.

The markets experience a correction almost every year. In most instances, when the bullish sentiment soars past the 55 park several times over 60-day period, the market almost always lets out a decent dose of steam. Any subscriber that has been with us for 12 months or more knows that Tactical Investors never chase the market or a given stock. We let the market come to us, that is the only way to score massive wins; point in case, the COVID crash.

We focus extensively on two tenets; Patience and discipline. Our entire trading methodology revolves around these creeds. The masses lose because they sorely lack both; the only thing they embrace with gusto is the useless concept of fear. Their entire trading methodology revolves around two useless (illusory states) fear and euphoria.

No change in the Anxiety index and there is a spike in the number of individuals in the neutral camp. This informs that a substantial percentage of traders don’t know what to do or what to expect from the markets, which is bloody good news. When the markets sell off the dumb money will be doing most of the selling while the smart money will be waiting for the fear levels to surge, and then they will come in and start buying. Market Update Dec 31, 2020

Many investors are stating they are itchy to jump into the markets; isn’t this bloody amazing, when the markets were crashing last year, and we were telling everyone to buy, they wanted to do the opposite. Now we are stating that its time to hold the gunpowder dry and they want to move in the opposite direction again—a classic replay of the secret desire to lose syndrome in action. Misery loves company, and stupidity simply demands it. The average mindset is wired to lose, so when you feel sure about something check ten times before you get into it, certainty about the markets is probably the best signal that you will get hammered. Stock Market cycles clearly indicate the following:

You buy during times of uncertainty and bank profits during times of certainty. Markets never climb a wall of joy; they climb a wall of worry and plunge down a cliff of Joy.

 

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