Wednesday, May 18, 2011

Opportunity of a LIfetime

The decade long view of the Dow Jone Industrial Average uses monthly bars to portray the past and suggest the future.  The devastating decline of 2007-2009 wiped out stock market fortunes.  So much so, the investing public remains out of stocks, although they seemed to have found some solace in gold and silver, for now.  

The chart shows a new high made on the current monthly bar, a turn lower below last months close and both right at a significant Fibonacci level.  I haven't labeled the waves because I'm too lazy.  Nonetheless, there is an A-B-C up from the 2009 low.  My longer-term trend indicator is still trending up, but reverses down at 11,415.  That's 1,000 points below current levels.  The Daily version of the indicator is already short.  The Weekly getting close.  

Look at those signals. They don't fool around.  You can sit out the next 1,000 points to be certain, you can subscriber to AllanTrends to be certain, or you can listen to Jim Cramer to be uncertain. In any case, there is a huge opportunity building in the market, those 1-3 times in a lifetime when if you are right, there are life-changing ramifications.  

It's how people get rich.



Anonymous said...

Can you compare the INDU with the SPX?

Anonymous said...

how can you get rich with only 5000.00 cash?

Anonymous said...

Easy, stop spending your money on stuff you don't need.

Easy, don't lose.

1) Even if you work at McDonald's, thousands of dollars pass through your hands. Stop spending money. Every dollar you don't spend is 100% return on investment with zero risk. Even Allan can't get you a return like that. This is your primary money making focus.

2) Don't lose. You need a 100% gain to recover from a 50% loss. Losers hurt you twice as much as winners help you.

A quick study to illustrate: Javier Estrada from the University of Barcelona decided to test out Wall Street's assertion that you must buy and hold or risk missing the best days, because most of the returns of a year come from the ten best days. Estrada tested what would have happened if one invested $100 in the Dow from 12/31/1899 to 12/31/2006. The results were if you missed the 100 best days, you ended the century with a $12 loss, but if you missed the 100 worst days you ended with $11,700,000. (buy and hold was a little over a $20k return).

This illustrates how punishing loses are to an account. It also illustrates that aside from the very exciting 200 best and worst days, the market was a pretty crappy place to be for the remaining 35,800 days of the last century.

They say old people should be more careful with risk, but I think that is wrong. Each of your $5000 represents what it will bring in 40years when you need it. I would be more conservative, not less. We are also less able to protect ourselves with the markets awash in liquidy and all markets correlated. So, in my opion, I would play defense with my $5k, join the long range trend when it truely gets going, and follow that trend to the end. Sure, you miss the beginning of the move and give some back at the end, but that is what trend trading is all about, simply ending the trade with a profit.


PS: Keep position sizes small, these markets are crazy and we are due for another flash crash.