Cut and run? I
This last week, many asked, “Is it time to sell-take my profits and run”? I have heard many reasons for the current selling, including;
1. High Frequency Trading
2. Poor Earnings Forecasts
3. The Chinese Economy
4. A Rigged Market
5. Poor quality Initial Public Offerings
6. Time for a correction
7. Low job creation
8. Similar chart pattern to 1929
9. Ukraine and Putin Aggressions
10. Another Flash Crash
The list goes on. Personally, I see the main reason for the selling is two words, profit taking. After the huge run in 2013, it is not a question of if but when, investors/traders will lock in some profits. One could spend one minute, hour, day, week, or month trying to figure this out but the bottom line-does it really matter? When you have more selling than buying, price is going to head south-pure and simple.
My main rule per buying or selling is to make decisions on what you see instead of what you hear, think, or feel is going to happen. With that being said, my trading systems are highly effective at giving profitable trading buy and sell signals. Again, nothing is 100 percent accurate. Let’s take a look at a twenty year chart of one of the largest held mutual funds-symbol AGTHX-the Growth Fund of America. Let’s see if my system would have worked to keep investors in the green.
Per the chart, sell signals are hit when two conditions occur. First, the price must cross down through the blue signal line and stay under this line by the end of the next month. By using this system, I have indicated when you would have been out of the market. Many wished they would have been out of the market during these huge downturns from 2000 -2003 and also from 2007-2009.
Your next question, “What are the trading buy signals?” I do just the opposite and wait for the price to close and stay above the blue signal line by the end of the next month. You can see by using this system the very profitable runs.
Quiz time. Currently, are there sell signals for AGTHX? Per the chart, you can see the price is currently trading well above the blue signal line so use the above rules to determine the answer.
I have taught many these buy and sell systems and you can learn as well. If interested in learning my systems for your securities, sign up for my upcoming workshops at John A. Logan College. Take the time to learn which indicators give the best signals for buying and selling for each of your securities.
This information to be used for educational purposes only.
Next week, I will answer your question, “Using your system, do you see the S&P 500 making a market top”? In addition, I will give my five questions to always ask before harvesting profits.
Plan your work, work your plan and share your harvest!
Source: stockcharts.com, davidoengland.com
Disclosure: I do not hold any securities mentioned in this column
DAVID O. ENGLAND is the founder of the Eye on the Market-Training Academy and retired associate professor of finance at John A. Logan College. This column is presented for educational purposes only and is not intended as financial advice. For questions, contact England at thetraderseye@gmail.com.
