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Thursday, September 1, 2011
If you took my advice three weeks ago to "buy stocks now," you've had a good month. Stocks are up about 8% since then, and every market sector participated in the rally. Now it's time to cash out... at least for a little while.
We still have the positive influence of the presidential cycle. But the S&P 500 closed yesterday below its 20-month exponential moving average, which indicates a bear market. So we have conflicting indicators.
When in doubt, it's a good idea to take profits.
Even if you think stock prices will be higher by the end of the year, there's good reason to be cautious for the next couple weeks. Let me explain...
For all intents and purposes, the stock market crashed in August. The S&P 500 collapsed 18% in just five trading days. Even though stocks have bounced back off the lows, the market is still in need of a retest to complete the typical "crash" pattern.
Stock market crashes unfold in three distinct stages: panic, relief, and a tortuous retest of the lows. Take the action in 1987 as an example...
Now take a look at where we are today...
So far the "crash" pattern is playing out according to plan. All that remains is the retest. If it unfolds like 1987 did, the next few weeks could be rough. After all, September tends to lean bearish.
It's been a fun three weeks, but go ahead and take some profits off the table here. We should have a shot at buying stocks again at lower prices a few weeks from now.
Best regards and good trading,
"Forget about the panic. Forget about the gut-wrenching, portfolio-busting decline last week," Jeff writes. "Buy stocks now." He called the exact bottom of the recent correction, and the S&P 500 has recovered nearly 9% in three weeks. Get his reasoning here: Buy Stocks Now.
"Most traders let their emotions rule their actions," Jeff says. "They buy when they're feeling euphoric. And they sell when they're scared to death." Read more to learn what he calls the easiest investment system ever.
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