A DIFFERENT LOOK

THE TRENDS: Since officially the first quarter of the year ended with this Friday's trading I thought it would be interesting to give you a look at a very important chart that I look at when analyzing the long term trends. The image you see below is a quarterly chart of the SPY. Each bar represents 3 months of trading activity and the last bar you see is the trading activity that took place between 1/1/2012 and 3/31/2012. As you can see the last two quarterly bars have been very bullish so the long term up trend remains very much intact.



As you can see the chart spans from 1998 to the present. The main advantage of using a chart like this is that it is easy to get confused by the daily and even weekly fluctuations in price. But when you pull up a monthly or quarterly chart the long term trends become clear. The other major advantage is that long term support and resistance levels become clear. I've pointed out the importance of two such levels on the chart. The bull market which began in 2003 ended at nearly the same level as the previous bull market in 2000 and the bear market which ended in early 2009 ended just below the level of the previous bear market in 2003.

SUGGESTION FOR 401-K: As I pointed out last week, even though the bull market is strong, if you have been out of the market entirely up until now, it is a little risky to throw in 100%. My feeling is that over the next several weeks we will at least get a normal market correction to a support level. If and when that happens we then look for a sign of strength that another up leg will take place. This will offer a lower risk opportunity to participate if there is more up side left.

Have a great weekend!

UNEVENTFUL WEEK

THE TRENDS: As you can see from the attached weekly SPY chart the week closed slightly lower than the previous week and didn't have much of a range. This is typical after a very strong up week. The long term trend and intermediate trends remain up.



SUGGESTION FOR 401-K: As I said last week although the trends are up the market has made a very strong run up from the last intermediate term buy signal. Typically bull market behavior is that we will see at least a 1 - 2 week correction sometime in the next several weeks. So now is not the time to throwing "all in" if you've had all of your money in cash up until now. I will continue to monitor the market daily to look for the type of pullback, then bounce, that would indicate a continuation of the bull market when it will be much safer to get back in. So keep watching your emails each day!

If you have any questions, don't hesitate to ask. Have a great weekend everyone.

Strong Week

THE TRENDS: The long term trend is mildly bullish while the intermediate term trend is strongly up. As you can see from the chart this week was strong compared to the previous week and for the 2nd consecutive week closed above 137.18, which is a formidable resistance area.



SUGGESTION FOR 401-K: If I had been out of the market 100% up until now I would start "dipping my toes" and commit maybe 25 - 33% of my account into mutual funds. The only reason I wouldn't go 100% yet is that typically, at such an important resistance level, we see at least a mild market correction. If a market correction does happen, and it becomes a "larger than normal" correction, then the loss sustained won't be so large. If the market has a shallow retracement followed by strength, then I would commit the rest of my account to mutual funds.

If you've been looking for an opportunity to get back into the market, check your email each day during the next couple of weeks. If and when we get a shallow retracement followed by strength, I will update the blog that night after the close, which will give you the opportunity to get back into the market instead of waiting for the end of week update. Have a great weekend!

GRINDING HIGHER

THE TRENDS: The long term trend is up and the intermediate term trend is up from 115.71. As you can see from the attached image, last week started out selling off the first couple of days but then rallied strongly later in the week to close slightly higher than the previous week. This is bullish market behavior. In bull markets it is very typical to have sell days early in the week only to have the week finish strong. The opposite is true of bear markets. Still, the market is only slightly higher than the major resistance level of 137.18. Anything can happen at these levels, so I'm watching very closely for the events which may signal a potential change in intermediate term trend.



SUGGESTION FOR 401-K: If you've been in the market since my last signal I would stay in. But if you've been out 100%, now is not quite the time to throw in 100%. There is some specific price action that I would like to see in order to do that. I will continue to watch and let you know in the coming weeks when and if that happens.

In the next few weeks I'll be introducing some trading ideas that I will be using to trade funds outside of 401-K's where one typically has more flexibility in terms of what instruments can be invested in. Until then, have a great weekend everyone.

WHAT NEXT?

LONG TERM TREND: As you can see from the weekly SPY chart, last week closed up from the previous week and also barely closed above the May, 2011 high of 137.31. While this is bullish there is a high probability of a severe market correction or even change in the long term trend to down if the right combination of metrics that I use to analyze the market come together.



SUGGESTION FOR 401-K: If you have been out of the market up until now I would not advise getting in at this point.

INTERMEDIATE TERM MODEL: Last week I shared with you a monthly chart of the SPY which showed only two major buy signals and two major sell signals over the last 11 years. If you recall I also drew green circles at those areas between the signals where the market made a larger than normal correction between those major signals. As I shared with you last week the goal of the intermediate term model is two fold: 1) Exit the market whenever the model indicates a high probability of a normal correction. 2) Buy the market again when the model indicates a high probability of the long term up trend resuming. I am proud to say that I've accomplished both goals. The chart below shows the last major buy at 79.52 on 3/31/09. If you would have simply bought at that point and held until Friday's close, your total return would have been 73%. Now take a look at the notations I've made on the chart. These are areas where the intermediate term model would have bought and exited positions since 3/31/09. As you can see the model did a very nice job of getting you out early on the last two market corrections and got you back in early on the next leg up. Bottom line is that if you had timed your entries on the SPY according to this model your overall return would be 111%.

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From this point on I'll update this chart to clearly show the long term and intermediate term trends. If anyone has any questions, don't hesitate to ask. I love talking about the markets. Be blessed everyone.