Ah, simplicity! I told my class Tuesday evening… This is not brain surgery, and it is not rocket science. So, here goes: Get THIS, and you, too, can be a stock market investing expert!
First, I said I’d bring my 5 class points here in installments. Read my March 2nd post for Point 1. As an adjunct to that, I explained that beyond the obvious Bull and the obvious Bear markets, I detail in the previous post… There is the Transitioning Market, from either Bull to Bear, or Bear to Bull. This Transitioning Market always has these same 5 characteristics, so that you may always identify it, and take proper action.
As stocks transition from Bull to Bear, 1.) the price of the Index will fall thru its own 50-day moving average. 2.) It will always decline thru its own 200-day moving average. 3.) The 50-day moving average will reverse from an up-trending course, to a down-trending path. 4.) The 50-day moving average will fall thru the 200-day moving average, called a ‘Death Cross’, and, finally, 5.) the 200-day will also roll over and commence to turn down. The end result will be a down-trending index price, moving downward beneath its own 50-day moving average, which in turn is also trending downward beneath the now down-trending 200-day moving average. You have transitioned from a Bull to a Bear. Take all 5 points, and beginning with #1, reverse the action just stated, and you have the transition from a Bear to a Bull. 1.) The index price rises thru its 50-day. 2.) The price rises thru the 200-day. 3.) The 50-day turns upward. 4.) The 50-day goes up thru the 200-day, called a ‘Golden Cross’, and 5.) The 200-day then turns upward. The end result will be an index price up-trending above its up-trending 50-day moving average, which will, itself, now, also be up-trending above the up-trending 200-day moving average.
Chart this for yourself for free at investors.com. Find Research in the tool bar, hover your cursor over that, and a drop down menu appears, and click on IBD Charts. Type in the symbol SPY, to track the S&P 500 Index, and, viola, you have the index with both its 50-day and 200-day moving averages! And, to look at it right now, it’s looking rather bearish! Point 1 is to Always know what kind of market you are in. It’s a Bull, Bear or transitioning between the two. Point #2 is Know what to buy. We’ll go there next time.
The title is K.I.S.S. We’re talking the beauty of simplicity. Understand this… here is what moves the markets, and in this order. 1.) The perception of either inflation or deflation is first. 2.) The perception of inflation or deflation is to move central bankers to set interest rates, either up or down. 3.) The interest rate, and the trajectory it is on, is for the purpose of encouraging, or discouraging general economic growth, or contraction. 4.) The perception of economic growth, or its lack, is the single greatest determinant of corporate earnings. And, 5.) the perception of the trajectory of corporate earnings is the greatest single determinant of the direction of stock prices. Got that? If you do, you’re way ahead of the game, and nearly everyone who attempts to play it. Here’s how to apply this knowledge:
1.) Are we in an inflationary, flat or deflationary environment? If you don’t know, we’ll explain that shortly. We are in a deflationary environment. Generally speaking, prices are not rising, and at the bottom, in the most basic commodities, they have been falling. 2.) Are interest rates rising or falling? The perception of deflation has, in the main, caused that central banks be lowering interest rates, despite our Fed’s December move to raise rates recently. Europe and Japan have now reduced rates into negative interest rate territory! 3.) Has the trend of interest rates been to encourage, or discourage economic growth? The trend in interest rate change by the central banks has been for the purpose of encouraging economic growth. It has been called ‘Stimulus’. 4.) What is the actual trend of economic growth, as a result of the previous? The actual result is that there would appear to be no real economic stimulating going on, and the economy, as measured the world over, is quite sluggish, if not downright recessionary! 5.) What has been the perception of economic sluggishness on the perception of corporate earnings estimates? The more recent perception of where corporate earnings estimates have been headed, just since the end of 2015… despite all the stimulus that has been, and is now being attempted, is that earnings are more likely to be in decline, meaning… stock prices have been going down, and will continue to do so, for as long as the perception of corporate earnings remains poor, or worsens.
How can we know any, or even all, of the things just mentioned above? If you have the charting capability to track the financial instruments of all of these things, you need never be ignorant of what is going on in the world around you, or ever held captive to the musings of some ‘guru’, as I have been called. You can become your very own guru!!! Amaze your friends! I’ll explain further, very soon. It’s truly simple, and you can become an expert! I’ll tell you what to chart. The charts ‘speak’ to any who will ‘hear’. Do you know how to ‘listen’ yet?
Here’s to your successful investing!
Harold F Crowell