Eye On The Market: Why, Oh Why, Part II
By David O. England
CARTERVILLE, IL - Eye on the Market with David O. England - Why Oh Why II?
Last week I answered your questions pertaining to previous Fed decision. I discussed that the US economy, Wall Street and the economy on Main Street are never the same plus never recover or prosper at the same pace and speed. Today, I will answer your questions on how this current inflation adjusted 101% retracement compares to previous bull runs and if it may be time to take profits.
For comparison, I will use inflation adjusted charts from Doug Short at dshort.com. Doug goes back to 1987 to the present and calculates the percentage gains and declines from previous lows and highs; based on monthly average of daily closes with data from the S&P historical composite.
Let’s analyze the last two longer-term bull runs and compare these to the current 101% retracement from the March 2009 lows to the present. The period from 1949 to 1968 ran 418%. While the 1982 to 2000 bull run was 666%-inflation adjusted.
In conclusion, the current 101% run is minimal compared to the two 413% and 666% bull runs previously discussed. Keep these data figures in mind when calculating your projected points for taking profits. One strategy I teach my students when calculating profit harvesting is to go back twenty years and see which indicators the institutions used as sell signals in 2000 and 2008.
Once calculated, use this feedback when deciding to take profits from this current run. Once accomplished, this data will give you information to make better educated, financial decisions. Finally, once you decide to take profits, consider using a trailing sell order. These types of sell orders will actually trail the security price and then will only trigger when the price falls. This one strategy alone can add additional percentage points to your bottom line.
Source: dshort.com, thetraderseye.com
DAVID O. ENGLAND is the founder of the Eye on the Market-Training Academy, and a retired associate professor of Finance. He can be reached at email@example.com. The information above is for educational purposes only and is not intended to be financial advice. Your decision to buy, sell, short or hold any stock or investment product is a direct result of your own decision, free will and research.
On the Net: The Trader's Eye on Facebook