Market Timing Pro

Being Right? Or Making Money!

When a market timer (or any trader or investor) makes a trading decision based on a news event, fear of losing out on a rally or of losing money in a sell off, or even the stock broker neighbor's trading tip, he or she is trading on emotions.

Wishing Your Were Right

Trading on emotions, news events, market rallies, etc. is basically trading on a WISH.

There is no basis for the trade, at least none that can be counted on to last. There is nothing but "the moment." The trader wishes he or she will be right.

Odds of winning? Slim.

Trades made on wishes have no plan behind them. There is no exit strategy. Invariably, the trade is held until losses become painful enough to force the trader to emotionally sell at a loss.

In fact, probably the worst thing that can happen is for a market timer to make a trading decision based on such an emotional event, and then be profitable the very first time!

Not that there is anything wrong with being profitable. But very soon that same trader will be looking at a losing trade, and the confidence of that first win is likely to cost him or her dearly.

Making Money

No one makes money on Wall Street without a trading plan. No One!

Sure, the person with an initial profit can feel great for awhile. And really, really long term investors, those who can afford to watch several bear markets whack 50% to 80% off their savings every 10 years or so, will eventually make money.

When we say long term, we mean 20 to 30 years! If you sit tight, you will likely make a profit. That is, as long as you do not panic and sell at a bottom. or become greedy and "double up" with margin (almost always at market tops). And, as long as you do not reach retirement age at the same time a multi-year bear market starts.

There is only "one way" to be certain of being profitable.

"...a successful trading plan that creates unemotional buy and sell decisions will, over time, make even the most emotional person, a successful (profitable) market timer."

By having, and following absolutely, a finely tuned trading plan that capitalizes on "trends" in the stock market.

Market timers who have a strategy for entering and exiting positions, and who follow their rules, on a timely basis without hesitation, make money.

Those who trade by daily news events, daily or weekly rallies & declines, and TV hype, will "always" end up losing money. Remember, for every winning trade in the stock market, there is a losing trade on the other side. Only those who follow a plan consistently make the winning trades.

One of the most important questions you must ask yourself is:

Do you want to BE RIGHT for a short time. Or do you want to MAKE MONEY for a long time.

Winning Market Timers Know the Secret

Ignore the news. Ignore the daily ups and downs. You have no control over them anyway. No one knows what the next day will bring. No one!

Wishing will not help. Watching the financial news religiously will not help. There is just no way to know what will happen tomorrow, or even what will happen next week.

But a successful trading plan that creates unemotional buy and sell decisions will, over time, make even the most emotional person, a successful (profitable) market timer.

At FibTimer, we provide the plans. All you need do is follow the signals.

But a few simple rules do apply.

1. Subscribers should make sure they know how each of our timing strategies works. Read the details and trading rules at the bottom of each report. They will help you build confidence in the trading strategy.

2. Be sure you know your own emotional ability to handle trading. Aggressive strategies require more trading. If this keeps you up at night worrying, consider one of the active or conservative strategies. Remember, you do not need to trade aggressively to do well, you just need to follow the buy and sell signals diligently.

3. Subscribers who are new to market timing should not jump right into an aggressive timing strategy. No matter how positive you are that aggressive timing is for you, it is better to start with something a bit tamer in the beginning.

4. Diversify. It is not a good idea to place all your timing funds in one strategy. Consider three or even more. We have created the Diversified Timing Portfolio just for this if you want a diversified strategy that is ready to go.

Build confidence by starting slowly. When you are confident, you will follow the signals. And following the signals is the key to being profitable.

Stock Market Signals A Momentum Thrust

On Wednesday, the stock market virtually erased the previous day’s huge losses with a rally that contained a technical indicator forecasting higher highs ahead.

Advancing volume outpaced declining volume by a ration of 20 to 1 on the NYSE, and by a ratio of 9 to 1 on the Nasdaq. On days when trading volume exceeds the 9 to 1 ratio on the NYSE it is called a momentum thrust and is a rare event. Historically, having two such days within a ninety-day period forecasts a 10% to 14% market advance over the coming six months to a year.

While having one such day is bullish, watch for a second in coming weeks. It will likely mark the start of an entirely new stock market advance.

Follow your strategy and adhere to money management rules to protect capital. If you do not have money management rules, give FibTimer.com (http://www.fibtimer.com) a call. The surest way to lose money in the stock market is to trade without a plan.

Oil Service HOLDRS (AMEX: OIH) Buy Signal

Exchange traded Fund Oil Service HOLDRS (AMEX: OIH) confirmed a new bullish trend late last week, and with Wednesday’s rally, has moved higher for this week.

OIH was not pummeled in the selling on Monday and especially Tuesday of this week when the DJIA lost almost 300 points. On Wednesday, OIH rallied and wiped out not only the prior two day’s losses, but also closed higher than last week’s highs.

OIH is now right at resistance at $177.00 a share. A close above this level will forecast a run to at least $183.38 in coming days.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy has a position in OIH .

Motorola (NYSE: MOT) Rally Breaks Down

Motorola Inc (NYSE: MOT) has been in a seven-month slide that has loped 38% off its share price. Two weeks ago we wrote that Motorola was close to support, that if broken, could result in an escalation of selling.

Motorola managed a week of small gains as the stock market rallied last week but has now, again, dropped to just above critical support. If shares close below $16.00, a large number of stockholders will give up and sell. Motorola could decline to $14.50 a share if the $16.00 level does not hold.

The Fibtimer.com (http://www.fibtimer.com) Stock Timing Strategy has a position in Motorola.

Breakout Rally For Ishares Lehman 20 Yr (AMEX: TLT)

Exchange-traded fund Ishares Lehman 20 Yr (AMEX: TLT) rallied through June and July but then topped out in early August. After a pull back, TLT rallied again and closed last week just below its early August highs.

On Monday, TLT gapped up at the open and made a decisive higher close above the prior late July rally highs as well as the Fib 61.8% retracement resistance level. TLT should run to at least 89.32 in coming days. If 89.32 is surpassed, we could see a run for the November 2006 rally highs.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy currently has a position in TLT.

The Impulsive Trader

The Stereotype

We are all familiar with the stereotype of the impulsive trader. Traders who are impulsively looking for trading thrills, while telling themselves they are doing it to make a profit.

The rush of adrenalin that comes from making the "big" trade and then watching to see if it is followed by a "big" win.

It is not so different from betting at the race track. It is far removed from what is required for successful market timing.

Impulsive market timers take trades because of emotional responses to news events, market rallies, or market sell offs, because they "feel" they know what is going to happen next in the markets.

They take trades not because the trade is required, but for the thrill of the trade itself. All risk controls are ignored, no logical trading strategy is followed, and no exit strategy is prepared ahead of time.

Of course anyone can act impulsively at times. But in the investing world, impulsive trades are almost always losing trades. Impulsive trading has led to the outright ruin of many traders.

Delaying Gratification

An interesting test was once run to measure a person's impulsive tendencies:

Participants were asked to decide between taking an immediate, small monetary reward (that is, $100 right now) or a larger reward given later, $500 in six months.

"...in the investing world, impulsive trades are almost always losing trades. And compulsive impulsive trading, can lead to outright ruin."

Impulsive people tended to take the smaller, immediate reward. They have difficulty delaying gratification. They can't wait for the larger reward. They want what they can get as soon as possible.

Even disciplined people can act impulsively when the conditions are right.

There is little harm in impulsively going for a latte instead of your usual morning coffee, black with two equals.

Yet while some impulsive decisions may have little effect on one's life, impulsive decisions made when trading the stock market can have major negative consequences.

Compulsively Impulsive

Market timing, and all successful trading for that matter, requires that investors clamp down on emotional impulsive behavior. Market timing is possibly "the" perfect example of unemotional, non-impulsive and non-compulsive planning. Timers look far ahead in time, planning for gains that may not be realized for months. If in cash during a bear market, actual profits may be postponed years.

Instant gratification is the exact opposite of what market timers must expect. Those who think that long term buy-and-hold investors hold the edge in long term planning are not correct. It is market timers, following a plan that takes years to unfold but offering gains far in excess of a simple buy-and-hold, who have the real long term strategy.

Conclusion

Impulsive traders will have great difficulty being successful (profitable) market timers. Market timing is the non-impulsive execution of a planned strategy, that can only be successful over time.

Market timing requires adherence to a trading strategy that requires trading not when you feel the urge, but only at specific points in time when your trading strategy tells you to do so. And, those times are often in direct conflict with the prevailing market sentiment.

Impulsive personalities face many difficulties. But in investing, be sure to hold those impulses at bay if you want to successfully beat the markets.

Correction Ahead In S&P SPDRS (AMEX: SPY) & Powershares QQQ (NASDAQ: QQQQ)

The stock market reached the 50% retracement level for the current correction on Wednesday, based on charts of the S&P Depositary Receipts SPDRs (AMEX: SPY) and Powershares QQQ (NASDAQ: QQQQ).

On Thursday the stock market reacted to this resistance level with selling, though it was modest. The sharp correction experienced by the stock market in July and August has been followed by a sharp reversal just a strong and fast. The market needs time to digest the fast gains, especially as most of the problems that caused the selling in the first place remain unresolved. Look for lower lows over the coming days.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy has a position in both the SPY and QQQQ.

S&P SPDRS (AMEX: SPY) & Powershares QQQ (NASDAQ: QQQQ) Reach Important Resistance

The S&P Depositary Receipts SPDRs (AMEX: SPY) and Powershares QQQ (NASDAQ: QQQQ) both have reached important resistance levels.

Both the SPY and QQQQ have reached the 50% retracement of the entire July – August decline. It is very likely that this advance will suffer a substantial pullback very soon and such pullbacks usually start at strong resistance levels such as this.

Fibtimer.com (http://www.fibtimer.com) holds a position in SPY as well as QQQQ in its ETF Timer Portfolio.

Lower Prices Ahead For Ishares Russell 2000 (AMEX: IWM)

Shares of exchange-traded fund Ishares Russell 2000 (AMEX: IWM) rallied off what appeared to be a correction bottom last Friday. But the rally ran out of steam at $80.00 right where two previous rallies failed.

IWM looks like it may have lower prices ahead. The $80.00 level is the 50% retracement of the entire July-August correction to date. Having been unable to surpass it three times is more likely to result in weakness over coming days than strength, with potential lows at $75.84 and $76.65 support levels.

If we do have a breakout in IWM above $80 a share, it will be a good sell stop for a bullish trade. But until we see that level, traders should tread carefully with shares of IWM.

Fibtimer.com (http://www.fibtimer.com) also holds a position in Ishares Russell 2000 in its ETF Timer Portfolio.

S&P 500 Index (SPX) & Nasdaq 100 Index (NDX) Chart Analysis

S&P 500 Index (SPX) Chart Analysis

Last week we wrote:

"...After what appeared to be a strong comeback for the market early this week, we had the almost 400 point Dow loss on Thursday that quickly lowered the expectations of most traders for a quick resolution to this correction. There are several reasons why we are not looking for an extended decline both in points and in time. We will go over some of them here but remember, nothing is in stone. The markets could go lower still."

This week:

Another volatile week has left pretty much everyone involved with the stock market completely exhausted. Thursday's selling extreme has many of the earmarks of a bottom. But there are some questions.

For the SPX, the selling took prices down almost to the March 2007 correction lows. At that point a strong rally completely erased the days losses and the SPX closed with a small gain.

It was not technically a reversal day though. A reversal from support in itself is bullish, but other indicators must fall into place to consider it a correction bottom.

One of those is the weekly statistics that show lower intra-week lows for the SPX, lower intra-week highs and a lower weekly close. Those are the earmarks of a decline that remains intact.

There are several indicators that are at bearish extremes including the CBOE Volatility Index - VIX. This "fear" index made it to four-year highs this week. Typically the market reverses when such fear levels are reached. The problem with VIX is, the same was true the prior week and the week before that. Yet VIX continued to rise and the market continued to plunge.

Other indicators such as MACD and Stochastics are at extremes, typically where reversals take place. Again though, extremes can become more extreme. They are great indicators but reversal traders often lose their shirts. We like our shirts.

The Fed's 1/2 point cut in the discount rate was a huge surprise and the stock market immediately rallied on Friday. Many see it as bullish but some will see it as proof the economic concerns are now real. They may now sell. We do not know if the bottom was reached on Thursday. It is absolutely too soon to take a position. Early next week may see a continuation of the late week rally, but then the real test will be for the rally (assuming it materializes) to hold up. We have been saying for weeks that straight down declines are usually short lived. We still feel that way but of course issued sell signals anyway when they were generated. That is what unemotional timing strategies are all about. Second-guessing is not part it. The selling has gone further than we imagined it could in such a short time frame. When the trend is confirmed to the upside we will re-enter and not until. The SPX position remains in cash (money market funds). If the market recovers, we can always jump back in. Do not be surprised if the recovery is very volatile. It may take awhile. S&P 500 Index (SPX) Daily Chart Nasdaq 100 Index (NDX) Chart Analysis Last week we wrote: "...The Nasdaq Composite and Nasdaq 100 Index - NDX, which we follow here, managed to reach lower lows this week before rebounding. Friday's close was several percent above strong support though which is at NDX 1871." This week: The Nasdaq Composite and Nasdaq 100 Index - NDX really hit the skids this week as stock markets around the world sold off. Thursday's reversal from its lows was not as strong for the NDX which finished the day with a loss. The SPX finished that day with a gain. The NDX is following a course that is typically seen in corrections, and possibly it has established the first two (of three) waves and is now in wave C. We have marked these waves on the below chart but it is far to soon to consider them as absolute. Because the selling has moved so far so fast, we have changed our projected support levels to long term ones that are based on the March 2007 lows. Note that the Fib 78.6% retracement level was almost reached on Thursday. The NDX portion of this strategy is in a cash (money market funds) position. Nasdaq 100 Index (NDX) Daily Chart