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Market Timing

Saturday, January 30 2021

Remember, this Blog has nothing to do with MIPS, but is more about what I study and how I invest.

- of course, the majority of my trades result from MIPS Signals, but not all.

So, exactly where is the Stock Market going from here ???
- the answer is easy, NOBODY KNOWS
- but, we can make some very "educated guesses" on what will happen (or said another way, we can develop some very practical possibilities)
- and, we can explore strategies regarding how we should invest in each
- some of my "tips" are written below...

First let's define what "where is the stock market going from here" means...
- basically, under "normal conditions" (like good economic growth, good earnings, low corporate debt, no crazy buying, low taxes,
  low interest rates) the stock market goes up
- otherwise, except for the rare "flat markets", the market goes down.
Now, let's examine "going down"
- there are multiple, identifiable ways that stock markets "go down"
- your reaction to each "drop" should be different

Here are some of definitions of typical market drops (and we will explain how we should react to each below these definitions)
1) Normal "Dips"
   Long-term up-markets look like:
    - stock markets move in cycles (like a sine wave)
    - what drives these cycles in an up-market is when the mid-line of the cycles have an upward trend (and vice-versa for down markets)
  Long-term down-markets can be identified like that above (down trends), but most of the time the down-trends fall much faster than in up-markets
  - but, in this type movement, the down cycles are more like dips than crashes
  Nothing special causes this, as it is "the norm" of movements for bid-and-ask markets
2) Corrections
    The investment community has named a "market drop" of over 5-10%, but not over 20% a "Correction" in the market
    - mostly corrections happen in normal markets as the result of some "bad-news events", not from bad economic business fundamentals
    - a good example of this was the correction between 4Q'19 thru 1Q'20 that resulted from bad news regarding the Brexit
    - during this time, the market fell in almost a straight line from the beginning-to-end of 4Q'19 and fully recovered in a straight line by the end of 1Q'20
    - the pattern for this type of correction would be called a "V-Bottom" 
   In addition, many corrections result from extremely overbought markets (where investors have pushed up stock prices way higher than they are worth)
3) Market Crashes
    Market crashes are when market indices (like the DOW, S&P500, Nasdaq 100, Russell 2000) drop over 50% in a one or two year period
    - in the market crash of the 2000 recession, the Nasdaq index dropped over 60% and took over 16 years to recover
    - in the market crash of the 2008 financial crisis, the SP500 dropped 55% and recovered within the next two years
   Normally, Market crashes result from a very poor economy (like a recession or depression).
    - by poor economy, we mean low consumer spending, lower business revenues, lower profits, higher debt, high borrowing rates, etc
    - this is like being in a slow moving, bad news environment with a relative long-time recovery
    - in the market crash from the depression in 1929, the market fell 90% in 2 years and took over 20+ years to recover
   Under no conditions (except using Quantitative models that hedge by effective shorting), you should not be fully invested in a market crash.
How to react to the above
You need to develop and follow your own "Strategy" in investing your hard earned assets.
- to be a successful investor, you first have to (really) understand your risk/reward tolerance (ask me about this)
- develop your Assent Allocation plan to determine what % of your Net Worth you want to have in Hard Assets (real estate, gold/silver, coins, etc), 
   and what % you want to have in Liquid Assets (cash, equities, bonds)
- this blog (and MIPS) is concentrating mainly on how you should invest your equity/bond money.
Your options on managing your own money include:
Traditional Investing
- buy-and-hold
- decide on your stock/bond allocation (like 60% stocks, 30% bonds, 10% cash) depending on your risk/reward toleration
- spread your investments thru mutual funds (certain %'s in large-cap USA, mid-small-cap USA, International companies, emerging markets, etc)
The above will most likely follow the market up, but does not protect you very well in market crashes

More Sophisticated Investing
- this includes using quantitative models to make money in up markets (and a little better using margin), and making money in down markets by
  "hedging" (that is, by going short to invest against the market when it is falling)
OK, where is this market going (my analysis) ?
1) Market Dips - We will always have "market dips", so simply do what MIPS says to do
2) Corrections - In long-term investing, corrections come and go like the wind. 
    - The current market is a good candidate for a correction due to an overbought market, high-corp. debt, record-high margin buying, etc 
    - In other words, too much speculation
3) Market Crash - The most likely thing that could cause a market crash in the next 1-3 years is the COVID-10 virus
    - If the virus continues to spread (like through new mutations) for the next several years, this would disrupt our economy and cause a recession.
    - To counter this, you could invest less in equities than your norm (like maybe only half of norm)
    - Or better yet, rely on MIPS to take you into "short" positions (inverse ETFs, etc)
    - However I believe the vaccines will bring things under control over the next 2 years, and hopefully things will revert back close to the norm

To execute your equity Strategy you can:
1) Keep trading on your own (when to trade, what to trade, when to punt, and when to run)
2) Use MIPS or other Quantitative Models by yourself with some of your money
3) Sign us with RIAs (Registered Investment Advisors) that use multiple Quantitative models (you do nothing, but pay a fee of 1.2-1.8%)
    - if you are interested, I use three good RIAs myself (they use 4-5 models each and only one uses MIPS; so I am buying model diversification)
4) Use traditional RIAs  (call me, I know some of the best, as I send them potential customers for free, and they treat you well because I sent you)
     Note - I make no money from these recommended RIAs (but I do make lots of friends and that is more important to me now).

In the meantime, and no matter what you decide to do in the future, keep using MIPS Signals as your guidance now.

PS - Even after last weeks market dip, all of the MIPS models are still long and the performance of the last signal on 6/26/2020 are:
        Trading SPY   +22.8%
        Trading QQQ +30.8%

Call me (10am-10pm, CDT - six days/week)
Paul Distefano, PhD
CEO / Founder
MIPS Timing Systems, LLC
Houston, TX
408-234-8348 (cell)
Posted by: Dr. G Paul Distefano AT 09:45 pm   |  Permalink   |  Email

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Houston, TX  77292

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