THE DEATH OF BUY AND HOLD

Many of you have probably heard from many so called experts to always leave your money in mutual funds and keep adding more as you save. This is the "buy and hold" philosophy. Up until the year 2000 this was sound advice as the general cycle of the market was to rally for several years, have a correction which at most lasted several months, only to be followed by another rally which took the market to new highs.

But beginning in 2000 everything changed. When looking at a monthly chart the market started a cycle of volatile swings up and down instead of maintaining a "stair stepping" trend higher. Today, 11 years later, the price of the S&P 500 is LOWER than the highest price it reached in 2000. If you were one of the unfortunate souls who started investing when the market reached it's peak in 2000 you have not only not made money over the last 11 years, but you had an overall negative return.

If you're not yet convinced "buy and hold" is not the right approach then take a look at the attached daily chart of the S&P 500. On the first trading day of the year...January 3, 2011 the market closed at 1271.87. On the last trading day of the year...December 30, 2011 the market closed at 1277.06. This is a return of a whopping .4%! No wonder why so many have to delay retirement and are forced to work much longer than anticipated.



A BETTER WAY

When looking at the chart you've undoubtedly noticed the green and red squares marking the significant turning points in the market during 2011. What if we could find a way to get into the market reasonably close to the green and move our money to the sidelines reasonably close to the red? That's what I've been spending a great deal of my time on since the fall of 2011. The goal has been to take all of the most important tools which I use to forecast the direction of the market; and develop a mechanical timing model from it, eliminating as much discretion as possible. I will have this process completed within the next couple of weeks at which time I will start posting it on the blog. I will also start sharing some hedging ideas that will be helpful to those who are limited on the number of switches they can make in their 401-K plans. Have a great weekend everyone!

BACK IN

LONG TERM TREND: As you can see from the attached image, this week closed above the highs made in October. This implies a high probability of a move up to test the next higher high around 137. Technically the long term trend is now neutral with a slightly bullish bias.



SUGGESTION FOR 401-K: I'm dipping my toes back into the market. Anything can happen once the 137 level is hit so I'll be watching that level closely for signs that the market may reverse again to the down side. Have a great weekend everyone!

STILL IN NO MAN'S LAND

LONG TERM TREND: As you can see from the chart last week closed up but not very strongly. Price challenged the October high of 129.42 only to close lower today.



SUGGESTION FOR 401-K: There's simply not any reason to get excited yet. Although the last few weeks have closed higher they have only closed marginally higher. Not exactly the kind of strength you would typically see in a bull market. In addition, the 40 week moving average is still pointing down. There still is no strong conviction in either direction. My 401-K money is still in cash.

NO CONVICTION YET

LONG TERM TREND: Volume on the week after the holidays was even lighter than the week before Christmas and the week before New Year's Day. Although the week closed higher than the week before the market basically closed where it opened on very low volume. In addition, although the market has rallied a bit above the 40 week moving average, the average itself remains down (red), which is bearish. Bottom line is that there is still not enough bullish sentiment to convince me the long term bias has shifted to the up side. Price has yet to rally above the October high at 129.42.



SUGGESTION FOR 401-K: I am still on the sidelines with my long term money. Be blessed and have a great weekend.