I spent a good chunk of my time over the last 2 weeks evaluating everything in my life including trading, finances, relationships and health. My computer problems a few weeks ago were simply a metaphor of all the 'excess baggage' (for lack of a better word!) I tend to carry in different areas of my life. Some of the things I'm going to be focused on going forward are:
- New exercise regime
- New spending habits
- New eating habits
- Better relationship with family/friends/girlfriend
- Obviously, trading
At the risk of sounding cliche and as a student in the realm of self development, it's important to manage all areas of your life if you want to experience any kind of trading success (at least that is my experience). We all know how often external (to trading) issues can affect our psychology.
Anyways, to the markets...
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I spent a good portion of Friday after the close and all Saturday putting together (in quite some detail) an intermediate and long term trading/investing plan that I want to share with you right now. However, it would be disingenuous of me to say that I've included all details of my plan in this post. I have many pages of hand written notes documenting all my investing/trading ideas so it would be impossible to explain all the 'whys' of my conclusions so just bear with me.
To keep things simple my primary aim is to share and discuss the timing of the equity markets based on not only my own work but that of others. All I've done is distilled all the information at my disposal into one neat package that will hopefully assist you in your investing decisions over the coming years.
On Monday, Tim Knight over at SlopeofHope.com posted a Big Picture analysis of what he thinks will occur long term and I invite you check it out. It should not surprise you, however, that his views are quite pessimistic. In short, he's calling for a bottom of the bear market in 2014, or thereabouts. Now let me say something about Mr. Bear Knight.
(Source: Tim Knight - SlopeofHope.com)
Tim has been THE contrarian signal for the whole run up since March 2009 and I find it incredibly disingenuous that he's now bragging about how he called 'this' and 'that' back in '08 yet he didn't trade what he prophesized. Further, calling for a collapse in October 2008 was likely (for anyone who was paying attention) one of the easiest calls a trader/investor can make assuming he/she understands market sentiment. The same can be said for the March '09 low. I hate to sound so trivial but it's very black & white what you should be doing when sentiment moves into the top/bottom percentiles. That is the golden rule of true contrarian investing/trading.
In summary, what I'm trying to say is please be careful listening to someone who has been bearish night and day for the past 2 years. Personally, I try to listen to people who are even keeled. In other words, they know when to establish a bullish/bearish position but more importantly they know when to admit they're wrong! THAT is a true sign of experience.
DISCLAIMER, ECONOMIC BACKDROP AND SENTIMENT
Let's face it: the global economy is STILL in shambles despite what the pundits claim. The US economy has a projected 10-year $9 trillion budget deficit, we've got banks that are still not marking to market and effectively insolvent, and unemployment rates almost hitting double digits (if you believe government statistics). The problem is everyone knows this. So what is an investor to do?
It's a difficult question to answer don't you think? If the market were strictly tied to fundamentals we would probably see the DOW trading much lower. However, anyone who has hung around the block for a while knows how disjointed the fundamentals of a country or economy and its corresponding stock market can be.
To my mind, the larger story continues to be the US dollar and its ultimate demise as the world's reserve currency and in this context you MUST be bullish on stocks over the long term - as counter intuitive as that sounds. (Note: there is a caveat to this statement that I explain in the 'Comparmentalization' section below.)
Also, I consider myself to be a market atheist of sorts. I don't care for the bullish and I don't care for the bearish. And I don't mean that in the cliche sense! I live and breathe that mantra and I think I've clearly displayed my ability to execute this philosophy via this blog.
Lastly, being a bear in this market is veryyyyy easy because everyone is convinced that all hell is going to break loose. At the same, however, you do have a contingency of bulls that think all is dandy, but I must admit that between the two groups things slightly favor the bulls long term and I'll tell you why: bears get excited too quickly.
When this market gets rockin' and rollin' again to the downside, I guarantee you that the down draft will be fast and furious! In other words, it will be short in duration but will be incredibly violent - even more so than 2008. But this is precisely the bears' problem! Sentiment turns so negative, so quickly that you HAVE to be bullish most of the time.
LONG TERM ROAD MAP
The next few years will be challenging for investors whose aim is to 'play it for the long haul'. I guarantee you that people who are not selling into this rally are going to lose a good portion of their 2009 returns in the next year or so. So my advice to each and every one of you is to participate in your finances. No one has a more vested interest in your money than you!!
Now, the entire US economy is a Ponzi scheme of epic proportions. It is built upon a framework of boom and busts and I suspect (after mid-2010) we are headed into the last chapter of the capitalistic system - The Government Crack-Up Boom. By the way, this is not a good thing ;)
In 2008/2009 governments and central banks around the world refused to let market forces due their job and we will all pay for those poor decisions in terms of massively rising prices and interest rates. Now, before all you deflationists pile on me, I do believe in the Kondratieff cycle (though I'm not an expert in it by any means) but within that larger 60-year cycle, I do believe in smaller degree inflationary cycles.
Anyway, in short this is what I see:
Tentative Road Map - US Equities
This little, yet very important, diagram is my best guess to future direction when I combine all the data I have access to. By and large I have not seen anything like this which is a good thing because if this was a mainstream view I would have to 2nd guess everything.
You'll notice I have not included price labels. My point is to convey possible future TURNING POINTS as well as OVERALL DIRECTION. I'm not trying to time the market to the day or even the week but I give this forecast a good +- 1-2 months leeway on each turning point.
COMPARTMENTALIZATION
2009
The bull run from March '09 to today has been nothing short of amazing. In fact, we are up an astonishing 54% from the lows and while many bears are salivating at the thought of another 2008, my feeling is they will have to wait. We're likely to get a top in August/September which should mark THE top for 2009; however, THE top to the overall bull run will likely occur in early 2010.
2010
Bulls beware! If there ever was the potential for another 2008-like downdraft, it will occur in 2010 and could be a lot worse! Even if it isn't it will definitely be a doozy! THIS will be the market that bears have been waiting for, but the bearish trade in typical fashion will get so crowded, so quickly that it will only last about 6 months.
Note: Provided all the technicals, sentiment, etc line up the way I would like them, 2010 will mark a great opportunity to buy the market up for the next 1-3 years. Also, expect the US dollar to rally during this period, but not significantly.
2011
Let the crack-up boom begin! If you manage to buy within 1 month of the low in 2010 and sell within 1 month of the (intermediate) high in 2011, you my friend will be styling! However, the chances of both of those things happening are quite slim so my suggestion (at this point in time) would be to hang on to those positions if you are a passive investor.
2012
This particular year will likely retrace a portion of the 2011 rally but will only provide the astute investor another opportunity to load up on the long side for the 'blow off the top' rally that will ensue in 2013.
2013
The majority of gains in most investments are usually made in the last 6 - 12 months before the top. This year will distinguish itself by not only being the top to the crack-up government boom, but will mark the top in the interest rate cycle and afford buyers of bonds a very attractive investment opportunity to lock in high returns.
IMPLEMENTATION
Whichever way you cut it, economically speaking things look terrible over the coming years. I think you'd be hard pressed to find even the most astute contrarian investor arguing that. However, the big question is which market will be the one to crack? My bet is on the US dollar.
When the time comes to buy up stocks and start investing again, areas such as the precious metals and agriculture will be the best investments in town. You're going to have to prepare yourself psychologically for that moment because it will be very hard to buy the market up when the steamroller shows up in 2010 and the bears are driving it.
OIL TRADE (MAY BE ANOTHER BUBBLE)
Be wary of a top in the oil market in mid/late 2010. There are many powerful cycles (including a 3-year, 10-year and 30-year cycle) that all peak in the 2010/2011 time frame. Here's a great look at the 100-week, 3-year correlation cycle and the 10-year price cycle in Crude Oil.
Note (in blue rectangles) the 10-year cycle tops:
- 1980
- 1990
- 2000
- 2010???
YES, I CAN BE WRONG!
There is no such thing as an investor who is 100% correct. Not even Warren Buffett.
I always allow myself to be open to the possibility that I am wrong. I've said it numerous times but successful investing/trading has NOTHING...I MEAN NOTHING to do with being right! It all comes down to having a plan, having the probabilities in your favor and executing said plan. It's that simple. Don't make things more complicated than they have to be.
