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Market Timing

Saturday, February 29 2020
Last week was a historic one in the stock market, with a horrific one-week drop.  The drop last week was one of the top six one-week drops in the stock market since 1929.!!!  And, that hurts.  But still, last week's drop was NOT a stock market "crash".  Remember, in street talk a "dip" is a drop less that -10%; a "correction" is a drop between -10 to -20%; and a "crash" (or bear market) is a drop of more than -20% (usually between -35% and -60%).
Furthermore, strong up-markets (bull markets) normally DO NOT just drop from all-times highs to a bear market in a matter of days or weeks. There are way too many things that go into the conditions that would turn a bull market into a bear market in a one-week period (or even in a one-month period).  To see that in more detail, please look at the graph immediately below.  This graph is with monthly bar-charts.  As you all know, the last two bear markets happened in 2000 and 2008.  What you may not know is that both times the S&P 500 market "waffled" near the top for 12-15 months in a tight, rather flat range; and they DID NOT collapse until the market broke the up trend-lines to the downside.  At this time, the S&P 500 Index is way above its trendline, but that could change in s short period of time.

 
STOCK MARKET CRASHES SINCE YEAR 2000
 
image.png

 
THIS IS WHERE THIS BLOG GETS INTERESTING.
There is a good possibility that what is happening now in the market now is just another of the many "V-Bottom" patterns that are popular in bull markets, and you most likely would like to see how MIPS has performed when in these patterns. The graph immediately below shows V-Bottom markets in 2014, 2016, 2018-19; and the graphs following that one is how MIPS3 actually performed in each V-Bottom pattern (as verified by TimerTrac.com). As you will see in the graphs below, with V-Bottoms sometimes MIPS goes to cash, other times it stays long; and in true prolonged bear markets MIPS will be short or in cash most of the time. 

See the 2008 graph below.  Between 2007-09, MIPS3 was up +138% when the SPY hit its low point with a -55% loss !!!  Please note that the stock market had degraded slowly for several months before the big drop hit.
image.png  x
2014
Red - SPY
Blue - MIPS3
image.png
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
 
Posted by: Dr. G. Paul Distefano AT 06:45 pm   |  Permalink   |  Email
Saturday, February 29 2020
2016
Red - SPY
Blue - MIPS3
image.png
2018-19
Red - SPY
Blue - MIPS3
image.png

2008 - Between Oct 2007 and March 2009, MIPS3 was up +138% when the SPY hit its -55% low !!!
Red - SPY
Blue - MIPS3
image.png
Now, here we are 10+ years later, with a strong bull market and with still very good economic conditions; but who knows what's next.  Most likely the next big moves in the market will be determined by the following "conditions":
  •  the COVID_19 virus,
  • the inverted bond market,
  • a highly over-bought stock market (high P/E ratios),
  • the 2020 elections, and
  • recession fears.
This is why we need MIPS to keep us out of trouble.
- if this market becomes a bear market, MIPS will make money like it did in 2008 (but most likely not that much);
  and if it becomes a V-Bottom, MIPS should ride it back to where it started.
- But, of course, in either market MIPS could be whipsawed (not likely)
- MIPS3 is a very good model, but MIPS/Nitro is better !!!


Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
Posted by: Dr. G. Paul Distefano AT 06:45 am   |  Permalink   |  Email
Monday, February 24 2020
Today was the worst day in the stock market in quite a while. It is not often that the Dow drops 1,000 points and the S&P 500
drops over 100 points in one day.

Many times, large daily drops in the market result from rumors or fake news, and the negativity does not last long. But, this time, 
there are two good reasons behind this big drop. One is the Coronavirus from China (and spreading) and the "inverted" interest
rate curve (i.e., where the interest rate on 3-month bonds are higher than the rates on 10-year bonds).  If this virus spreads like it
could, production and trade would suffer all over the world quickly.  And, if the interest rates stay inverted, the Fed could be forced
to lower rates, possibly even to zero or negative.  The many awful implications of these two "reasons" are way too broad to cover
in this blog, but you can find readings about these all over the Internet.

For now, let's see how worried you should be about this drop (and future drops) at the time. First, let's see how bad today's drop
really was. Of course, a drop like today is short-term bad no matter what, but not really bad when compared to recent gains. In
mathematics this could be referred to as "relativity"; where a 3% drop in one day in a market that has grown 25-30% in the last
12 months is actually not nearly as bad as a market that has dropped 3% in one that had grown only like 6% in the last 12 months.

Graph #1 immediately show us what today's market looks like after today, and Graph #2 shows us what this looks like after
stepping back and looking at the graph from afar (like seeing a forest fire from a helicopter instead from inside the fire itself).
Graph #1