Importance of the right time -
On May 31st, we saw market rally for 1 day and then drop the next day evaporating all the gains, this phenomenon is known as "BULL trap" (read 06/05/2011 blog post). Anyone who got into that rally assuming market is going to follow through got caught on the wrong side and had to incur losses. Hence, entering at the right time and exiting at the right time is the key to secure our profits and preserve our capital. Now do this for couple years and you will realize how your money grows based on compounding effect.
What is BPNYA chart telling us today?
From the BPNYA chart below, it is apparent that it will take few days (at a minimum) to see a BUY signal [BPNYA crossing EMA(30) upwards]. So what shall we expect next!!!
- Market bounce: This is most probable and likely scenario from current levels. But the bounce may not be strong enough to provide us with a BUY signal. We may get a bounce from now till start of earnings season in July and then based on overall earnings from various sectors markets may decide to rise or fall.
- Market stabilizes: Market may decide to go in a range (fairly chance), meaning 1 day up and next day down and so on. The range will be broken on upside or downside depending on 1st two weeks of earnings results.
- Market correction continues: Since most people are expecting a bounce here, markets have tendency to cause "maximum pain" meaning continue correction further so as to flush out many folks. The correction continue slowly grinding down and stabilizes right before earnings season starts and rise back up in full speed or fall even further which would suggest we are entering major market correction.
Great! At any point ONLY 3 scenarios exist.... DUH!!!
CORRECT! We want to stress the fact that we do not enter market unless we get an entry signal no matter what scenario market is going through. Simple enough!!!
What does it mean for our Long Term Funds!!!
401K/HSA/College Fund: We remain in money market funds until we get BUY signal
Traditional IRA/Roth IRA: Based on our "Advanced Strategies" section we should/could have invested in BOND ETFs when we got the SELL signal. But if we did not do it then now may not be the right time to enter as we might get a bounce here, so waiting for the right opportunity is the best strategy.