By John Reizner |
Would stock market aficionados potentially benefit from an investment strategy that successfully captured almost a nine hundred S&P 500 point gain over a six-year period (yes, nine hundred points!) without any trading other than a single entry and exit? If this interests you, then continue reading this post.
In my last article here, I described my interpretation of the Vortex indicator (a trend indicator available in many charting software packages). I plotted this indicator on a monthly chart of the S&P 500 and illustrated how its signals have successfully captured the bulk of secular bull and bear market moves over the last sixteen years with minimal trading activity.
The Vortex study has two oscillator plots: V+ and V-. When V+ crosses above V-, the underlying is making higher highs – it is a trend trigger and the start of a new uptrend. Similarly, when V- crosses above V+, the start of a downtrend is signified.
The Vortex has proven to be a worthy guide to investing in the stock market and a way for investors to potentially achieve stock market success over the long-term. I tracked an initial sell signal on December 31, 2000 - which occurred nine months after the stock market dot-com bubble peak at 1160.33 on the S&P 500. The market then traded down for almost two years falling nearly four hundred points to 768.63 in October 2002. By heeding the indicator, investors would have been spared a capital loss of over 30% in their equities portfolios.
The last significant Vortex indicator buy signal occurred during the depths of the financial crisis in November 2009 at 1093.65 in the S&P 500. A sell signal followed seven years later at 1920.03 on the S&P on the close of the September 2015 monthly bar. This successful trade representied over eight-hundred points of gain and over seventy percent move in the index!
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What has the Vortex indicator said about the stock market since its September 2015 sell signal? Remember, investors must plot this indicator on a monthly chart of the S&P 500 and ithe indicator's signals are rendered only at the close of each month – that way one receives fewer signals but they may be of greater magnitude.
There have indeed been three additional signals between September 2015 and May of 2016 primarily because the market has experienced a period of congestion during that time. Remember that this indicator does best when there are established trends in the market.
Vortex recently flashed a buy signal at the end of May 2016 and that is where we are now; however, this is a buy signal from a near seven year high water mark in the stock market whereas the best signals during the last sixteen years were rendered subsequent to bear market lows. So what may investors to do in this case?
I feel that as far as Vortex is concerned and in general investors may achieve greater benefit and potential profits when entering potential buy signals garnered from monthly charts when the market is rising from a significant market low, not from those signals emerging from a high in the market.
Contrary to the last seven years' experience of a bull market in stocks – future bear markets and recessions have not been repealed – not by the Fed or by anyone else – they are inevitable as the business cycle itself. Opportunity in the stock market knocks in its own good time. So perhaps investors may be well served by being patient until opportunity strikes by waiting for a potential selloff in the market.
How may one add an additional filter to the Vortex setup in order to reduce signal noise? A very fine indicator created by Alexander Elder – the early onset trend indicator, stands on itself. It simply renders a buy or sell signal depending on whether the market is beginning or ending a trend.
The indicator plotted by itself on a monthly chart of the S&P 500 rendered a buy signal in March 2010 at 1101.60 on the S&P 500. A sell signal followed over six years later in March 2016 at S&P 1932.23 – closing a successful trade with a net gain of over eight hundred S&P points with zero trading whipsaws! Onset Trend remains in sell mode today. Read more about my use of the early onset trend indicator here, here and here or utilize this site’s search feature to return results.
You may need to adjust the parameters of the onset trend indicator in order to get optimal results. Please leave a comment below if you wish to inquire about the settings that I use for the indicator on my charts.
What if investors were able to catch not just six years of a bull market in stocks as demonstrated in the previous two examples between 2009 and the present day– but potentially twelve years of a secular bull market without whipsaw signals– double the magnitude in time of the signal provided by my examples of the Vortex or Onset Trend indicators?
I have discovered an incredibly simple method on a chart without lower indicators that rendered a buy signal on October 31, 1988 at 278.96 on the S&P 500 and the next signal to get out of the market flashed over twelve years later on March 31, 2001 at 1160.33 - garnering a mammoth profit of over nine hundred S&P 500 points over the meat of the 1982-2000 secular bull market!
This method captured the bull market that emerged from (i) the aftermath of the 1987 crash; (ii) continued through the early 1990's savings and loan crisis; and (iii) past the 1998 Asian financial crisis caused by the the collapse of Long Term Capital Management. This method finally exited the stock market in March 2001 just one year after the Y2K internet bubble began to implode. Investors using this technique might have profited from nearly a 300% gain in the S&P 500 with virtually no trading activity over a twelve year period.
The last buy signal for this remarkably simple system triggered on May 31, 2009 at 919.14 on the S&P 500 some two months after the March 2009 financial crash climax low in stocks. It remains invested in the market today. With the market closing at 2151.13 on September 30, 2016 - this represents a current signal profit of over twelve hundred S&P points in just seven years!
Stay tuned to this blog for more information on this technique. I have been studying the stock market for thirty-five years – and this method is about the best way to play the long game in the market that I've discovered.
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Those of you who wish to gain insight into how to buck the investing crowd while stock investing in the face of economic crises, bear markets as well as stock-specific crises; please consider reading my concise book available here. More information about my book may be found on the book page and in the FAQ's.
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