The very First Principle of Successful Stock market Investing is: Know What Market You Are In. The reason is plain. Since you can never dictate to the market and tell it what to give to you, you must know what the market is giving and temper your expectations of it accordingly. Know that you can likely make money in a Bull Market. You can easily lose money in a Bear Market. And, you may struggle to figure out why it’s not giving you anything, only to learn that it may be in transition from one market to the other.
Wall Street already has definitions for us as to what a Bull or Bear Market looks like, and we would do well to learn and understand them. The Bull Market has particular characteristics readily seen by the eye. Chart the S&P 500. Have a year’s worth of data before you. Imagine a straight line from the beginning of that charted price data, to the end of it. Does it tend to flow through the middle of all that price data and have an upward bias to it? This might be hard to see, so Wall Street rightly suggests you add a 50-day simple moving average to that price data. It will wave, swinging gently up and down, but does the 50-day line generally trend upward from left to right on your screen? Add a second simple moving average to that S&P price data. That should be a rather smooth line, with little squiggle in it at all. what is the trend of that line? Up or down?
Taking all this into perspective, if an up-trending price is above its own up-trending 50-day moving average, and that up-trending 50-day is above an up-trending 200-day moving average of the price, you are looking at the classic picture of precisely what a Bull market looks like.
Want to see that visually for real? Go to investors.com, the website for Investor’s Business Daily. Find a toolbar under the title. In that toolbar, look for the word Research and put your cursor on it. A window will drop down. In that window, find IBD Charts and click on it. A price chart will come up for the Nasdaq Composite. In a box in the upper left, you can enter the trading symbol, SPY, for the ETF that trades like the S&P 500 index. Everything is already there. The price of the ETF that emulates the 500, a red 50-day moving average line, and a black 200-day moving average line. And, what do we see there? The price is up-trending and is above a red up-trending 50-day moving average line, which itself is above a black up-trending 200-day moving average of price. You’re looking right at a picture of a classical Wall Street Bull Market. Remember that picture.
For another free site, should that one not work for you, go to stockcharts.com. There, find, in the toolbar under the title, Free Charts. Click on it, and it will take you to another page. On the new page, you will see, in the upper left portion of your screen, a box with the word SharpChart above it. Enter the symbol $SPX in the box and click Go. The chart will come up, and you can go down the screen and turn indicators off or on, and it is very easy to either change the moving averages already there, or add the 50-day and 200-day moving averages, and you are looking right at the chart of the S&P 500 index.
Know what a Bull Market looks like now? By going long, and being invested in stocks during a Bull Market, you should be able to expect to make money, and that’s the market situation that we see right now.
Here’s to your successful investing!
Harold F Crowell