Market Timing Brief™ for 10-28-2011: Now that Europe is Solved, NOT

On 10-26-2011, I told you to sit tight.  I said the markets were retesting in a market timing terms and that the little swoon was not the next wave down.  That turned out to be good advice.  What has improved since then?

1. Europe got its act together to take care of Greek debt and has begun the process of recapitalizing their banks.

2. As a results fear began to wane a bit and the VIX slid through the 30.16 level and then some, which could auger in a further rally.

3. Most of our markets went up by 4-6% yesterday leading to the crowning of the month as the month with the largest percentage gain in history.  Talk about volatility!

Very bad has flipped to very good, so of course that makes it a bit trickier to make money.  The rally is not likely to end abruptly, but pullbacks of varying depths are likely.  There is too much at stake worldwide for the players not to do their parts.  When things get a bit ahead of themselves, you have to step into the market timing dips and buy when others are getting a bit more nervous.  Remember that investors and traders are programmed as they watch and are somewhat stuck in the fear mode even though conditions have improved.  This can lead to investors taking profits prematurely, which is to your benefit if you are underweighted in stocks during a rally.

The further twist is that you may have to be willing to take a loss to make money at this point in the rally.  Are you going to sell the next little swoon?  You won’t make money that way.  Trading blips in the market is for day traders only who have their eyes glued to the screens all day long.

There could be a 2-3% pullback any day now if one of the worldwide players says the wrong thing.  Of course, you need to set your stop loss point where YOU feel comfortable as it’s your money, but consider widening your stops a bit.  Otherwise you may stop yourself out and have trouble re-establishing your positions in the market if you fall behind.  Of note during the rise of the market this month is that the swoons that previously were enough to trigger big selling did NOT do so this time.  So that was different.  And when the market changes, we need to change and adapt to continue to make money.  Our market timing has to be clear headed.

Buying the indices that have a lot more upside to the July highs may be a good strategy now.  Examples would include emerging markets and small cap stocks.  These are also more volatile by the way (down 4% and up 4% in a day), so be sure you can stomach these sorts of moves before investing.

Realize as I tweeted yesterday ( you can follow my tweets on this webpage to the right, even if you are not on Twitter), the Euro situation is far from over with the other debtor nations still on shaky ground.  Italy is right behind Greece in needing assistance.  These headlines will generate the dips.  We’ll have to continue to watch the Euro currency for signs of failure of the overall SP500 Index rally as it is predicated on Euro zone stability.  I’ll be watching it with you.  Look for my update on the markets (the “Tracker” newsletter) this weekend.

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Standard Disclaimer: Remember, it’s your money and your decision as to how to invest it.

I posted an important Update on the Stock Market Here: This Weeks Video Chart Update

Been wondering about how investors are feeling?

Survey Says! (AAII Sentiment Survey that is!)

I have not updated sentiment lately because it was barely moving, but I will this weekend, so check back for it.  The tease is that it’s clear how the sentiment moves over the past few weeks are going to end.   Sentiment has not been helpful in the middle range it has been in, but it’s about to become important (hint: bullishness is rising and will trigger a sell signal).

Gold’s Next Move: GLD Gold ETF Market Timing Update

The most recent comment on gold is above, but check back to the above link for intraday comments or on Twitter (follow link to right).

And for some fun with the latest Fed Statement: Fun with the Federal Reserve Statement

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