In order to become a successful stock market investor, there are 5 essential principles involved. Master these and you cannot fail. If you do not know what they are, you cannot succeed. Today, I’ll list them for you, and explain the first. With successive posts, I’ll go into some detail about each of the others. You have to learn these, live ’em and grow to love ’em. They will serve you all the rest of the days of your life.
1.)Always Know What Market You Are In. 2.)Know What to Buy. 3.)Know When to Buy. 4.)Know When to Sell, and 5.)Establish Your Investment Goal.
First, Always Know What Market You Are In. Many people think that there essentially only 2 markets; the Bull and the Bear. They’re close, but it’s not enough. There is more than 2. There’s the Bull Market, the Bear Market and the Transitioning Market in between the two. Know how to identify each of these.
The Bull Market, by conventional Wall Street definition, is when the price of a major stock market index, like the Standard & Poor’s 500, has trended in such a manner as to be able to produce 2 simple moving averages with it. One moving average is created with 200 days of price action, and another is created with the most recent 50 days of price movement. With these 3 lines, one being the actual price of the 500, and the other two being the price’s 50 and 200 day moving averages, it is possible to determine what market we are in. The Bull Market is exhibited when the index price and its 50-day moving average are above the 200-day moving average, and the 200-day average is up-trending. The Bear Market is probably best understood as having the index price and its 50-day moving average both below the 200-day moving average, and that 200-day average will be trending downward.
The issue or problem comes about when the market is transitioning between a Bull and a Bear. The price has fallen through its 50-day moving average, and its 200-day. The 50-day has pierced the 200-day to the downside. What is it? Has the Bull died? Is a Bear forming? You really can’t know until it resolves itself. The resolution takes place, when you see that the 200-day average also turns downward, and the price can no longer rise up through it. The period of transition can take months to unfold.
Right now, the price of the S&P 500 is above both its 50-day and 200-day moving averages. The 50-day is above the 200-day, and both moving averages are up-trending. This is a Bull Market. It has been for more than 5 years. I monitor the market health and situation at all times. I try to always know what market I am in, and I’ll keep you apprised of that as well. Here’s to your success in investing!
Harold F Crowell