There are two Market Forecasts this week (also see “Cyclical Bull Market Support Line”). The first chart below is an SPX monthly chart from January 1990 to November 1994 and the second chart is an SPX monthly chart from January 2002 to the present time (June 2006). The first chart shows SPX traded above the monthly middle Bollinger Band for 37 months, except briefly in October 1992, and then fell below that level when it had a 9.7% correction. The second chart shows SPX traded above the monthly middle Bollinger Band over the past 36 months and continues to hold that level.
Unfortunately, much technical data for the early-1990s are not available. Also, much of the available data for both periods don’t have meaningful relationships. However, the VIX MACD and ULT are shown for both periods. Comparing the two pullbacks, the monthly VIX in 1994 rose from roughly 11 to 21, while the current monthly VIX is slightly above 18 from roughly 11. The monthly MACD in 1994 gave and held a bearish crossover, while the current MACD gave a bearish crossover last week, although it’s uncertain if it’ll hold for the month. The 1994 monthly ULT held 50, while the current monthly ULT is 51. So macd histogram, the technical data are mixed.
Currently, the CBOE Put-Call Ratio MAs are at historically extremely high levels, which is typically market bullish (since the put/call is a contrarian indicator). Also, the 10-year bond yield is slightly below the Fed Funds Rate, which may indicate little bond upside and limited stock downside. However, if SPX fails to hold the monthly middle Bollinger Band, currently 1,228 1/2, a larger pullback may take place. If a similar correction takes place, then SPX will fall to 1,197 (9.7% decline from 1,326). Also, if there’s a similar bounce after the correction, then SPX will rise to around 1,250 within a month.
Market timing is both an art and a science. It can contain elements of objectivity sprinkled with a bit of subjectivity. When it comes to timing market trades, the more you know and the greater your experience is, the better chance you have of keeping your risk low and increasing your profit potential.
Recently I read an article where the author stated that ‘market timing does not work.’ This individual qualified his statement by saying that he has been involved with market timing for 30 years. Therefore, with those kind of credentials who can argue with this statement?
Interestingly, I have been involved in market timing also for 30 years, and have been teaching it for about 25 years. Perhaps an opposing opinion with similar credentials will provide a more balanced view on this subject.
When it comes to market timing, perhaps it works for some and it does not for others. This appears to be the case when you read online from some that it is possible to time the market and from others that it is not.
Personally for myself and my clients, we have experienced real market timing over and over again. Whether it be by using the simple application of Fibonacci retracement ratios or simple trend line analysis, cycle turn dates or the oscillations of a MACD indicator, finding the right time to enter trades is not only possible, it can work consistently for the skilled chartist.
It should be noted that good market timing does not in itself translate into winning trades. This article is not about the complete trade, which includes not only the entry but also the exit strategy. In addition, you need to have the correct mindset (psychology) to deal with the emotions of trading.