Wednesday, August 26, 2015

Bear market?

Not yet! This is the most bearish momentum since 2011 but technically we are not yet in the bear market. At least according to my timing method.

For those of you new to my blog I am going to write a few words about my timing method. Basically is an improved version (I'm bragging, of course) of MACD. I am using exponential moving averages crossovers in order to get "buy" or "sell" signals. I mostly use two exponential moving averages (EMA) EMA25 and EMA50. Why these two? Because I noticed that they are giving me the best "buy" or "sell" signals with the least whip-saws (fake buy or sell signals). As a confirmation I am also using a single moving average (SMA120).

Using this pair of EMAS on weekly charts it gives me a clue when a new bear or bull market starts. I am always missing the exact top and the exact bottom but I can safely take advantage of a good chunk of a bear or bull market without fretting every single day that I may lose my money.

For example the "sell" signal came at the beginning of 2008 somewhere around 1,300 on S&P500, a few good months before the October crash. The buy signal was not that good or it seems this way because market went down from 900 to 650 then back to 900 in a very short time and EMAs didn't not had enough time to react to this sudden move. The buy signal was somewhere around 1,150. Actually not bad keeping in mind where are we today.

Coming back to August 2015 I see S&P500 (SPX) sharply bellow EMA50 for the first time since 2011 and also slightly bellow SMA120. EMAs are pointing down but not crossing yet. These are serious warning signs. We are not technically in bear market yet but I'm afraid this is not a "buy the dip" moment either. The bull market uptrend line is around 1,800, very close to today's level.

If you are in for the long term you should not panic yet. It's hard to believe market will go straight down from here. Most likely bulls will push SPX up a bit even if is going to be short lived. When this happens maybe a good idea is to buy one "put" for every 100 shares you own just in case SPX is going to plunge into a bear market. Options are expensive now but they are going to be much cheaper if SPX moves up even a little. Let me know if you are not familiar with options so I can give you some advice.

All the best!


P.S. I am adding two charts for AAPL. Judge for yourself if the signals generated by my method are better than "death cross", "golden cross". You may say it's easy to look back and find the best pairs of EMAs. It's exactly what I am doing but only ONCE, based on a long run in Dow or AAPL or whatever stock I am interested in, then STICK with that pair. In time (years) I may adjust them a little bit if I am getting an whip-saw but they will be close to the initial values.

A close up to see the current prices.

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