Stock Market Update

Stock Market Updates:

Our recent stock market newsletter, sent 23rd November, stated that the markets were very top heavy, meaning they were at resistance levels. We advised that investors should remain out of the stock market until further notice.

"If investors or traders are holding positions that they should either look to exit at these resistance levels (traders)or be prepared to hold through the correction (investors) and then add to their holdings."

The Shanghai was the early indicator of the stock market weakness at resistance levels. The DAX then followed by making a lower top or lower high. These signals need to be heeded.

Then we heard about the Dubai World debt crisis. It only takes a small bit of negative news to discount the current stock market perceptions and create a sell off that we have noticed using technical analysis on the charts.

The interesting thing about the Dubai crisis is that the news is old. Maybe not to the public and the man in the street but the investors and bankers all knew about the announcement to come at least a few days before it was announced. Conspiracy? Yes, somewhat. Read the charts. Ask some questions!

Why didn't the global markets make new highs this week? The S&P 500, the Dow Jones, the DAX, Shanghai, FTSE 100 and even the local All Share Index in South Africa could not bring themselves to make new highs and break the resistance. The stock markets couldn't break this level as bad news was coming. The smart money was preparing to move out of the markets temporarily. They gave you and I, the little guy, warning for about 5 days.

The next question is, "Did you heed the warning?" Many people trying to invest and trade the stock markets aren't able to handle the emotional journey. They suffer from the emotional pull of the stock markets with fear after a sell off or correction or even recession with the greed that the stock markets will always climb higher. TIP: The stock markets never go up or down in a straight line! They always experience cycles.

How do stock market cycles work?
You get small micro cycles which people trade intra-day or in very short term periods of 1-3 days. You get swing cycles otherwise known as swing trades which can last from 3 days to 3 or 4 weeks. You also get minor cycles which can last for 3 weeks to around 3 months, sometimes extended through to 6 or even 9 months. The major cycles are those we see in the stock market as we go from stock market boom to stock market bust! Which time frame do you want to play in?

I teach people to take advantage of any one of these time frames. Different people enable different choices and needs and ability. some people can handle the daily emotional ebb and flow of intra-day trading... it's only a select few that can actually make a success of short term trading in the intraday arena. Perhaps as few as 2% of people can actually handle this form of trading.

The next type of person is a short term trader that can take trades from 1-3 days and also require especially strong emotional and mental discipline. So, 90% of the reason you will make money or loss it will be down to your personal psychology. About another 3% of people can handle this type of stock market trading.

The easier time frame to be involved in would be the swing trade! This stock market cycle is much easier on the energy, mental and emotional discipline as well as time required to short term trade. Many more people are able to take advantage of this stock market cycle also called a swing trade. It does take some practice as well as much skill in chart analysis. This can be learnt.

The simplest time frame is that of the investor or a major stock market cycle. We've just entered into the next 5-year boom cycle on the stock market and you could simply buy good shares in good sectors and leave them for 4 and a half years. My only TIP would be that you ensure that the sector and shares remain above the 89-day moving average. Do that and you can get good returns on average.

However, if you want better than average returns, you would need to shorten your stock market cycle and focus more on the swing trades to make money as the different sectors grow and pull back. Each time, you are making money in the growth cycle and exit at resistance levels. Then invest again in sectors that are performing to compound your portfolio growth.

Take the time to learn stock market cycles. Then train your emotions to be patient for entries and resilience to exit at resistance. Repeat!







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