As we enter the 9th year of the current bull market from early 2009 there are no technical reasons that price won’t continue higher.
Breadth is good with all sectors contributing. Even with a current trailing PE multiple of almost 25 this Bull can go much higher.
Pullbacks into SPY primary trend line support should be bought until this rising support level is violated.
S&P 500 Index (SPY) daily
Giddy up.
Reversion to the mean.
I am a serial mean reversionator. I know that’s not a word but I like it anyway.
In a strict sense mean reversion is a mathematical average of historical growth. Although we don’t necessarily need to get fancy and apply complex formulas to historical growth in multiple time frames to find mean reversion we can simply frame price action by using a simple trend line. The longer a trend line the stronger a trend line.
Mean reversion has both academic and pragmatic support, however, it is still not a common concept used for entry and exit signals. I will say this…I have been watching CNBC for over 20 years and over the course of the last few years they are finally featuring more and more technical analysts that comment on these important price levels.
By using a simple mean reversion framework around price action I have proven it is possible to out perform buy and hold. My recommendations have out performed buy and hold by three times since I went live with SmartChartInvestor 5 1/2 years ago.
Remember, the only way to achieve out performance ( without leverage ) is to avoid the big downdrafts in the underlying asset. That is my goal. That has been my goal since I figured out the importance of risk management. That took me a long time. I must be a slow learner.
In case you haven’t read my book “How to Buy Stocks Like a Pro”, a quick story about what helped lead me to do this blog and web site stuff.
It was early 2001 and I was managing retail accounts for UBS. The S&P 500 index had violated primary support and was looking very bearish. Two things happened. I began recommending selling and stopped recommending buying anything. This resulted in less revenue to UBS.
Wake up call. I was brought before the powers that were and was drilled down about decreased revenue. I explained my thoughts about the market violating primary support levels and my concern about a potential significant correction coming. I also explained that risk can be managed by selling.
I was told in no uncertain terms that decreased revenue was not an option. Here’s the wake up call…I then asked “What is more important, client’s money or UBS revenue?” The answer I got still gives me chills…”Both”.
I actually said “Are you shitting me?” That didn’t go over well. I went straight to Blaine’s house and drank a bottle of red wine with him. When you needed a laugh you knew you could find many with Blaine.
I left UBS a few months later and watched my friends, including Blaine, and clients lose a shit load of money. There were only a few that heeded my advice. My father-in-law was one of them. He listened to me. He sold. Selling saved him. Sold at $1,750,000. Two years later that account value would have been $600,000.
So, there you have the very short version of why I do what I do.
There is so much more to explain. Like…
Long term bottoms can be identified.
Long term tops are difficult to indentify.
Long term bear markets can be avoided.
Trend lines, price compression, price flagging, momentum breakouts and a bunch of other stuff.
My primary goal is to help protect you from the next big downturn.
So, Giddy Up. Continue to hold open positions. Continue to add to positions that revert to the mean.
Let me know if you have any questions.
We will soon be accepting new premium members. Your referrals are welcome.
Trade Smart,
Don