Climbing the Wall of Worry

This Bull Market is now eight years and eight months old. Amazing! For sure it hasn’t always been straight up, easy money, especially in Canada, but a Bull Market it has been with an annualized Average Return Rate of greater than 14%. There was one significant ‘pullback’ in 2011 of about 20% that some would say was awfully close to a Bear Market. I also counted three ‘corrections’ along the way up of 9.46%, 10.93% and 18.41%. The good news is we had VectorVest timing to help steer investors clear of major troubles during these times.

So where are we at now? VectorVest believes we are Climbing the Wall of Worry, just as Steve Chappell explained in last Friday’s excellent Special Presentation video. Steve said Bull Markets are Born when the economy is weak, inflation and interest rates are low, and earnings are expected to rise. Well, inflation and interest are rising, but still historically low. Earnings last quarter and this quarter so far have been pretty good in both Canada and the US. Dr. DiLiddo’s Truth Chart shows we remain in a Case 4 Bull Market in both countries. (See VectorVest Views, Market Climate). Most Bull Markets recently have lasted only between 4 and 7 years, so a correction or another pullback may be in order sometime soon.

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Steve also said Bear Markets are born when the economy is strong, inflation and interest rates are high, and earnings are expected to fall. So, we’re certainly not there yet. However, with the Bull Market long in the tooth and whenever our VectorVest Market Timing Indicators approach historically overbought conditions, Steve said it’s a good idea to stay alert to downside moves that may to lead to another correction or worse. “Investors are looking for all kinds of reasons to sell.”

When Climbing the Wall of Worry, investors being investors, we usually have two major concerns. First, we worry the bull market will end. The market will come crashing down, wiping away a good part of our hard-earned profits. Second, we worry the bull market will continue. We’re too afraid to buy, but we worry about missing out.

VectorVest CA 10-year Market Timing graph

VectorVest CA 10-year Market Timing graph. Click or tap to enlarge.

So if you’re Climbing the Wall of Worry, what can you do? Here are five things you might consider for your long-term portfolio trading plan, as long as they suit your investing style and risk tolerance.

  1. First, stop buying stocks when VectorVest issues a Confirmed Down Call, C/Dn. Stick to your sell rules and wait for a new uptrend to be signaled with either a Green Light in the Price column or a Confirmed-Up Call, C/Up.
  2. Be prepared to weather the storm with stocks you own, but only if you have conviction in them and a pretty big profit cushion over time. High Relative Safety, RS stocks with above average long-term growth potential, (Relative Value, RV) may add to your conviction to stay the course. Does the stock pay a healthy dividend that’s been compounding? You may not want to give it up too easily. However, if a stock keeps falling and VectorVest assigns a SELL REC, it means you really need to consider whether there’s enough upside factors to continue holding rather than selling.
  3. Consider going completely or partially to cash. Just make sure you’re doing it for the right reasons, not just emotion or what you ‘think’ might happen. If your stocks are not performing well and the market is continuing to fall, then cash might be the best option.
  4. Even in a Bear Market or C/Dn, there will be times when we get a Green Light and the Color Guard says, ‘It’s okay to buy stocks.’ Consider buying fewer positions at once, and be prepared to take small profits and small losses until the uptrend is firmly established.
  5. Consider learning about Options. The ability to buy a Long Put or a Collar option for relatively low-cost insurance when the market or your stock is near historically high levels can bring peace of mind and possibly avoid a damaging collapse.

I hope these ideas are food for thought FOR 5 THINGS TO DO IF YOU’RE CLIMBING THE WALL OF WORRY.

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