On February 5, I shared with you a simple trick that keeps you on the right side of the market.
It’s so easy that anybody can do it.
All you need is a charting platform and the 20- and 50-period simple moving averages (SMA).
When I first shared this trick, I wrote:
The SMA shows the average stock price over a specific period. It smooths out the daily ups and downs to give you a clearer long-term trend.
If the market is trading above its 20- and 50-day SMA, I maintain a bullish stance no matter what.
It’s only when the market breaks below both SMAs that I look to play the downside.
If the market is in between the SMAs, or above one but below the other, take a more neutral approach.
These are very simple but extremely effective rules.
They’ll prevent you from taking profits too soon or taking the wrong side of the market when there’s a clear trend in force.
If you followed these rules since February 5, you would have stayed invested in the market and captured 3.53% of additional upside movement as of last Friday.
These rules would also have helped you avoid the majority of the 10.92% decline in the markets between July 27 and October 27, 2023.
And you would have gotten back into the markets on November 3, capturing 17.20% of additional upside as of last Friday.
You can see for yourself how this system would have worked on this chart of the S&P 500 below:
Now, I have to say, it’s not quite as easy as just buying when the market breaks above the moving averages, or selling when the market breaks below.
If it was that easy, then everyone would be a stock market millionaire.
But this is a great starting point for figuring out in a general sense whether you should be bullish or bearish on the overall market.
In my next issue, we’re going to build on this foundation.
Over the years, I’ve developed a mechanical scoring system that tells you exactly how bullish or bearish you should be given what’s going on with the market.
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The best part is that you can also apply this system to specific sectors.
This takes all of the guesswork out of the equation. You won’t have to worry about trying to figure out where the best opportunities are.
The scoring system handles that heavy lifting for you.
I promise you’re going to love this…
Stay tuned… we’re going to break down exactly how this all works.
Happy trading,
Imre Gams
Analyst, Market Minute