If you read the MoneyLetter, you may appreciate a 2-part column I am in the process of writing for that publication. The columns outline how an investor might design a trading system. In the articles, I illustrate the process that we at ValueTrend utilize in buying and selling stocks. Briefly, the key elements of a trading strategy are:
- Broad market phase analysis
- Individual sector and stock phase analysis
- Fundamental analysis
- Position size rules
- Sell rules.
I’ll post the articles to the ValueTrend website (www.valuetrend.ca) over the next 2 months after they are published. If you wish to read them earlier, I might suggest subscribing to the Moneyletter service. I think it’s less than $40 for a trial subscription (http://themoneyletter.ca/).
The reason I bring this up is because I view success in any endeavor as available only to those who apply a structured, systematic discipline. For example, I am an amateur competitive cyclist. Racing bikes is different than one who pursues bicycling for general fitness and entertainment. My routine as a racing cyclist involves specific types of (often) intense riding on specific days of the week. I have been fortunate to train with one of the top amateur competitive cyclists in Ontario. Dave (my friend) has been a competitive cyclist for most of his life. At 64 years of age, Dave still wins or places very highly at open cycling events, often, if not usually, beating top-notch competitors who are 1/3rd his age. Dave overcomes his “age barriers” through the most disciplined approach to training and science that I know of. Food intake, bike positioning, structured training intervals, recovery methods and a scientific approach to every conceivable (natural) edge that Dave can utilize are part of his lifestyle. Dave is a machine. Although I am not in his athletic category, I have learned much from Dave regarding structure and discipline in cycling.
Similarly, my prognosis on the markets is a structured one. Like Dave, I incorporate elements of analysis that I have found to be successful in investing (although not infallible). And like Dave, I am always studying my trade to look for another edge.
The Bear-o’meter is a quick-glance tool that I created 2 years ago for use within my macro-market analysis (step 1, above). It incorporates 6 high-confidence indicators that measure market risk vs. potential reward at any given time. I post the Bear-o-meter periodically on this blog—notably when there is a shift from one of the three zones (Bearish, Neutral, Bullish). This is one of those times. My Bear-o-meter index has moved from bearish/neutral throughout the summer to neutral/ bullish as of today. The indicators show as:
Relative fundamental value: bearish
All in, the Bear-o-meter reads as 5, or neutral/bullish at this time. This is up from 2 in September—which was a bearish reading. Back then, sentiment and seasonality were bearish – bringing the level into its questionable zone. While this indicator is not a short termed one, the Bear-o-meter is currently suggesting that conditions are ripe for a continuation of the bull market. This suggests that, despite short termed corrections, all lights are green for stock investors with a time horizon of more than a few months.
Upcoming events with Keith Richards
BNN “MarketCall Tonight” this Friday November 7, 2014 at 6:00pm
Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to firstname.lastname@example.org