Tags: bull | trend | time | SPY

An 8 Percent Decline in Stocks Would Signal a Bear Market

By    |   Friday, 17 Jan 2014 06:46 AM

Many stock market analysts spend a great deal of time trying to call market tops. This is generally an unproductive effort since prices tend to rise more often than they fall. However, the fact that they have been wrong for years fails to stop many forecasters.

Over time, following trends has proven to be more profitable than predicting trend reversals. Trend followers will never sell at a top or buy at a bottom. They wait for confirmation that the reversal has occurred and then take action. By following the trend, they participate in the upside as long as possible.

By acting when the trend turns down, they take a small loss and avoid the large losses of a bear market. Trend followers also have a plan to participate in the next bull market after the bear market ends, something most analysts using predictions fail to do.

One simple trend-following strategy is to use the 10-month moving average to time bull and bear markets. A moving average is calculated using only the most current data and drops older data from its calculation in order to follow the market action. Ten months has been shown to work well as a way to avoid most of the harm of a bear market.

For now, the 10-month moving average for SPDR S&P 500 (SPY), an exchange-traded fund that tracks the S&P 500 index, is $170.78. Investors should consider decreasing their exposure to the stock market if SPY closes below this price.

This simple system has beaten buy and hold over the long run and is likely to continue beating the market in the future. Investors should consider staying fully invested until the price action turns bearish to avoid missing out on potential gains. 

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MichaelCarr
Many stock market analysts spend a great deal of time trying to call market tops. This is generally an unproductive effort since prices tend to rise more often than they fall. However, the fact that they have been wrong for years fails to stop many forecasters.
bull,trend,time,SPY
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2014-46-17
Friday, 17 Jan 2014 06:46 AM
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