Current Market situation: We all know that the markets have been in correction from past few weeks. By now NYSE Index is almost 8% down in other words so far we have seen 8% correction in the market. However, we have been fortunate to avoid this correction based on guidance from our history teacher. Typically, 8-10% correction is considered healthy for markets, as every correction offers an excellent opportunity to enter the markets at the right time with right strategy. We already know our strategy and now lets wait for the right time. 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!!! It is a good practice to anticipate next move or be aware of possible scenarios yet be ready to accept the facts.
Possible scenarios:
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.
andre Santelli
6/23/2011 11:24:32 am
good stuff! Comments are closed.
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