Sun And Storm Market Timing Trend System™

The Market Timing Trend Types and Actions to Consider…

The system is comprised of four classes of uptrends and three classes of downtrends.

For uptrends, buying the dips is generally recommended, while the downtrends are mostly in stay-away status. The idea of using these market timing trend types is to define degrees of risk, which can be used to alter position sizing up or down depending on the trend type.

You will then tend to have more assets in the strongest trends and zero assets in the weakest. How many times have you simply ridden large gains down to zero or below? It’s time to consider a new way. This approach of investing in the strongest trends has been shown to improve investing outcomes.

Of course, consult with an advisor as needed and take responsibility for your own decisions in using this risk management tool.

UpTrend™ (UT™) Despite small pullbacks, the trend is up. Action to Consider: “Buy The Slips,” as I like to say.  Some pullbacks will be so small the market or sector won’t be downgraded to a CORUT™, the next trend down in strength.

Correcting UpTrend™ (CORUT™) More serious pullback, but often “Buyable.” Action to Consider: “Buy The Slips.”

Consolidating UpTrend™ (CONUT™) Deeper pullback that can morph further into a class of DownTrend™ (the three such patterns are noted below). Action to Consider: Buy the slip only if there is corroborating evidence for timing a buy, such as a major upward turn in the overall market along with the sector you are considering. As said, the market/sector may end up in a DownTrend™ if the trend continues further downward, so if you buy a CONUT™, use a stop.  After an extended rally, a downgrade to a CONUT™ can be a good time to take profits or even eliminate a position until it shows strength.

Bouncing DownTrend™ (BDT™) A bounce (trending up) with minor pullbacks in a Bear Market or in a serious decline.  Essentially it may be the beginning of an uptrend, but buying early carries increased risk, hence the trend name, which highlights the risk. I recommend mental stop levels.  Why?  Because when you put a stop into the market, the market makers may move the market down to your stop, trigger your sell and buy it from you and then allow the market to go back up. Also, if you place a stop far below the current price, a computer glitch on the exchange called a “Flash Crash” could book you an enormous loss only to see the market recover that same day. Action to Consider: A Bouncing DownTrend™ is a tradable move up to add to on slips unless the move is very extended in volatility terms, such as an exponential move up, which may end a trend, and often lead to a pullback. At times, during more gradual pullbacks, a market will slip from one of the stronger uptrends above to a BDT™, but more often I will downgrade the trend to a DownTrend Type 1™ (see below). A BDT™ is the weakest uptrend in the system and since a downgrade to a CONUT™ can be used as a stop for more aggressive traders, a further downgrade to a BDT™ could be used as a stop out point as well. Obviously the longer you wait, the greater the losses will be off the prior high.  You have to decide what your time frame and risk tolerance for drawdowns is. One key?  Get back in if you make a mistake and exit too early, but avoid whiplash from selling and then buying only to have the market break down a second time.  Usually it’s best to give the market enough time to prove itself before rebuying.

Consolidating DownTrend™ (CDT™) Scraping along the bottom often over a month or more. Off a low, but there isn’t even a convincing bounce. Action(s) to Consider:  Stay away until it shows signs of beginning a bounce (generally meaning an upgrade to a “Bouncing DownTrend™).”  Use a stop if you attempt an early buy of a small bounce out of a Consolidating DownTrend™, as a CDT™ is still a downtrend until proven otherwise.  It’s better to wait to buy until the strength of a Bouncing DownTrend shows up. For example, you could add on a retest of and bounce from a major low that has not been broken, but use a stop if you do. A downgrade to a CDT™ can be used as a signal to stop out completely, but the losses are obviously higher given what would likely be a wide stop. As I mentioned above, after a long run, particularly when a given market is stretched beyond reason, selling a downgrade even to a Consolidating UpTrend™ may be a good idea, or a place to take significant profits.

DownTrend™ (DT™) In either type of downtrend, despite small bounces that don’t warrant an upgrade to a Bouncing DownTrend™ or even to a Consolidating DownTrend™, the trend is continuing down. I’ve updated DownTrend™ status to two types of downtrends: DownTrend Type 1™ and DownTrend Type 2™.  DownTrend Type 1™ (DT-T1™) A downtrend that has sliced below its immediate trend level, but is still ABOVE its longer term trend level. I call these downtrends out, because waiting for a breach of the longer term trend level can mean losses that are far too big off the prior major highs.  If the longer term trend is the only trend, then breaking it would morph the market to DownTrend Type 2™ status in one step.  That’s because, in that situation, the immediate trend is equal to the longer term trend. DownTrend Type 2™ (DT-T2™) A downtrend that is BELOW both its shorter and longer term trends.   The difference in the two types is risk level.  It’s possible that a DownTrend Type 1™ market or sector will bounce before or as it reaches the longer term trend level.  A DownTrend Type 2™ market or sector is in a steady decline, and where it will stop is unknown. However, just because there is a long term trend level below the current price does not mean a market will respect it by bouncing from it.  It may slice right through. Action(s) to Consider: Without the type of significant bounce referred to below, we stay away from these two types of downtrends. DownTrend Type 1™ markets: If there is a bounce from the longer term uptrend level and the other signals confirm the move, it is a possible time to buy the given market or sector with a mental stop. DownTrend Type 2™ markets: Stay away until the trend morphs at least to a CDT™ (see rules above) or any of the types of uptrend. Again, if you buy a Consolidating DownTrend™ be sure to use a stop! The safest and most frequent buying opportunity to present itself coming out of a downtrend is a morph to a Bouncing DownTrend™. © 2022-2023 By Wall Street Sun and Storm Report, LLC  All rights reserved.