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Trade What You See, But Think Ahead

Trade what you see

Is there anyone who isn’t at least a little surprised the market rally has continued this far without more of a pullback? I know I am. The health tragedy that is COVID-19 keeps getting more dire, and the global economic consequences more devastating. Through it all, North American markets have rebounded from the March 23rd bottom with surprising persistence. It makes the point – to be successful, we must trade what we see, not what we think should happen.

Here is what we saw. March 25th – A Primary Wave Up, our fastest timing signal, issued when the MTI was 0.30 and the BSR 0.02, historical lows indicating a vastly oversold market. March 26th – A Green Light Buyer, GLB, signal confirming the Primary Trend with a green light in the Price column. April 6th – The GLB/RT Kicker and the DEW Up both triggered. These are middle-road signals that use technical studies to confirm price tend.

Our slowest, most conservative timing signal, the Confirmed Up Call, could have come on Thursday, May 14th if the market had continued to move higher. However, there was resistance on Tuesday, Wednesday, and Thursday so that did not happen. We do not get many Confirmed Up Call signals in a typical year, just seven in the last five, and when it comes, it is generally a good one. You should be ready to start buying we get it if you have not already filled your portfolio on a faster signal.

The Confirmed Up Call has three rules to confirm the market’s trend; the opposite of the Confirmed Down Call:

  1. Price of the VectorVest Composite closes higher than the prior day,
  2. Price of the VectorVest Composite Index, VVC/CA, has crossed above its 65-day Moving Average, and
  3. Price of the VVC/CA has increased five-trading-day period over five-trading-day-period for two consecutive five-trading-day periods.

    VectorVest MTI graph
    Click or tap image to enlarge

Following the timing signals is one part of the equation for a successful investor, it does not mean you should not think ahead.  My weekend process is to go over market conditions and my current holdings even before I begin looking at trading opportunities for the week ahead.

Here is a brief checklist that might help you develop your own weekend routine.

  1. View the Friday night Timing the Market reports for both Canada and the US. You can read the Color Guard and the Views to pick up a lot of useful information, but you will often get more insights by listening to the report read to you by a senior instructor. Just click on the Timing Tab and then the Special Presentation Video link at the bottom of the page.
  2. You want to think about different scenarios for which direction the market could go during the week ahead and how you will react. What is VectorVest guidance in the Strategy section of the Views? What are the economic news events that could affect the markets? Where are we in the Market Cycle – If the market keeps rising, should I buy moderately or aggressively? If the market begins to fall, what defensive measures beyond my current Stop-Prices should I take if any?
  3. Next, go over your open trades in a WatchList, Portfolio Manager, and Graphs. Think about possible scenarios for each position. Are any positions near their Stop-Price? Confirm your rules and resolve to sell if you must. Check the Earnings Release dates in either the Events Manager or your Portfolio stock viewer. Would you change your Stop and sell early if your stock has bad earnings? Would you buy more shares, and how many, if the earnings are good? The whole idea is to review your rules and prepare for any scenario.
  4. Finally, carryout your process for uncovering potential trade opportunities. This could include a stock review in Stock Viewer and your favourite WatchLists, stocks in the best-performing Sectors and Industry Groups, stocks listed as Buys in the Model Portfolio Action Plans, and stocks returned by running your favourite searches.

The bottom line, as a conscientious investor or trader, just like any business owner, you want to be prepared for anything the market or your stocks could do in the week ahead. TRADE WHAT YOU SEE, BUT THINK AHEAD.

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