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Market Timing

Tuesday, 23 September 2014

It is not really whether or not a market crash is coming, it's when. How do we know this? Because the big-bad-bear ALWAYS comes.

The very same "evidence" that Buy and Hold pundits (liars) use to prove that buy and hold works, actually proves that it does not !!!  Their basic evidence is the "100 Year Dow" graph below. Upon close examination, starting with 1900-1920, you will see 20 good years followed by 20 flat/down years, over-and-over. BTW, being flat or "even" after 20 years is really a tremendous loss, because one would have doubled their money over 20 years with bonds paying only 3.6% !!!

From the graph below it would seem that, if people lived 100 years or more, the Buy/Hold liars may have a point. But most investors' prime "equity" investment years are from the time that they are say 45 years old (bought house, kids in college, career sound, etc.) until they are 65 years old (approaching retirement, need safe investments, more money in bonds, etc.). So, the prime time span for investors having a large portion of their portfolios in equities is about 20 years.

In the last 110 years, the 20 good/bad periods were:
Good    1900-1920    1940-1960    1980-2000
Bad      1920-1940    1960-1080    2000-????

Almost everyone knows that the stock market in 1920-1940 experienced the biggest crash in the last 110 years, and we have personally "lived" through the market ups/downs in 2000-2013. But, what about the market in 1960-1980? For that, see the graph below. One could say that the graph speaks for itself.

It should be obvious by now that this leaves the time period 2000-???? to dissect. Will we have another big drop? If so, when? And, how fast will the market turn down and will MIPS catch the turn? My experience has shown the market crashes that result from bad fundamentals change slowly (long bubbles like housing, etc.), whereas crashes that come from surprise "events" (like Lehman Bros.) change quickly.

See the graph between 2000-2013 below. We all know (unfortunately) that we have had two big market drops of over 50%. You will probably be relieved to see that, at the top, these markets traded in a range of (+ and -) 5% of their market tops for 9-10 months, before they headed down fast !!!

How did MIPS handle the BIG market crash of 2008? 
- Well, it started with a short call on 12/12/07 for a 12% gain, followed by 4 other profitable short trades.
- Total gain of about +40% on the last 3 short trades between Sep'08 - Mar'09) !!!
- See graph below.   What, me worry?

 Legend:  Red Boxes = Short Signals;   Green Boxes = Long Signals;  Yellow Boxes = Cash

Graph below is the MIPS3/MF performance in 4Q'07 - 3Q'09 using "verified" trade signals on TimerTrac

Posted by: Dr. G. Paul Distefano AT 08:21 pm   |  Permalink   |  Email

MIPS Timing Systems
P.O. Box 691047
Houston, TX  77269

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281-251-MIPS (6477)