Module 3 - Market timing tools for the long-term investor
This module builds on module 2 - stock market cycles. In the previous module you have learned some fascinating cyclical patterns in the stock market that are indicative of what is happening in the future. In this module we are going to add another layer. We call them the underlying fundamental conditions. Ideally, the cyclical patterns should be supported by the underlying fundamental conditions of the economy.
It is also time to learn how to time the bottom of market crashes, when everyone around us including us is as bearish as we can get. After the corona crash this year, you were probably surprised by the fact how fast markets can bottom, while tops usually are longer processes that take more time, bottoms happen extremely fast and come as a surprise.
And what we developed at our online trading academy; we are sure you will appreciate a lot as a long-term investor. We have created a unique indicator that would have told us to buy at the bottom of every crash in the past, including the dot com crash, the housing crash as well as the latest corona crash. This indicator you will be able to upload into your own trading platform and use on all equity indices, ETFs and stocks.
We will also show you the most important fundamental market timing tools for the long-term investor including FED models like the anxious index, the dynamic yield curve and unemployment trends.
Lesson 1: The FED and Market Timing
You have probably heard the following phrase before: “market timing does not work.” And it is clear to us why Wall Street wants to us to buy into that notion that it is impossible to time the markets. Of course, we as an online trading academy beg to differ and strongly disagree with that idea. And guess who is on our side here: Our dear friend, the Federal Reserve, who we know by now, is the biggest and most influential participant in the financial marketplace.
Now, since we are always interested in what the biggest most influential institutional participants are doing in the market, wouldn’t it also help to understand fundamental indicators the FED looks at and operates under?
There is a highly informative paper released by the Federal Reserve with the headline “market-timing strategies that worked”. You can google this paper and read it. As the title already reads, this clearly is about market timing and which ones they focus on.
In this lesson we are going to show you FED indicators, which give the long-term investor a lot of fundamental backdrop, on how to predict bottoms and tops.
Lesson 2: Tops and Bottoms
In the next lesson we will show you tops and bottoms in the market and their general characteristics in terms of the underlying conditions that are in place for a top and for a bottom. And these conditions differ.
You will learn that tops are processes that can drag on for an exceedingly long time, like we have basically seen since late 2017, where the markets were basically moving within a bigger timeframe sideways trend until 2020, when the markets finally bust and crashed lower. This tells us that we need fundamentals to time a bear markets or a market crash. Really looking at market conditions.
In a bull market, market conditions are good and all the sudden they become bad. And then the market figures it out at some point and there is a market crash. And then markets would crash until stocks are significantly valuable, or in other words extremely cheap. That brings out all the buyers and this bungee effect of markets just rallying back up. This V shape recovery that everyone is talking about.
That is why market tops take so long, because it takes an exceedingly long time for the economy to fall apart, but it happens very quickly for prices to go back into a level of value, where these stocks become cheap in the long run.
In other words, monthly high quality demand zones, which you will learn on how to identify in the blueprint course. There does not have to be any fundamental condition in place for bottoms. All that needs to happen is that there should be value for the longer-term investor. In other words, cheap prices, because they will come in and buy, thinking that in the long-run things will get better, because they always have. And the way how we would spot that is by simply looking at high quality monthly demand zones.
You must understand that stock market bottom and tops are quite different in the way they set up in terms of the underlying market conditions. So, we are not going to look at the stock market prices to call stock market tops, we are going to look at economic fundamentals, that have an extremely good track record of timing these. In other words, we are going to look for indicators that predict recessions. Because recessions lead to bear markets. And bear markets lead to market crashes.
And even though bottoms are technically a lot easier to spot, they are emotionally extremely hard to time. Because we have this cognitive bias, and we must buy when everyone around us including us is as bearish as we can get. We must be able to buy into weakness, ignoring our emotions and buy monthly demand zones. To help with this you will learn a unique technical indicator, we developed for our students. We call it the “Campus Buy Signal”. This indicator would have accurately timed all market bottoms in the past with impeccable accuracy.
Lesson 3: Fundamental Conditions and Indicators
We will introduce you to powerful fundamental indicators that have timed and predicted the past 7 recessions without fail, including the latest corona crash. These indicators include the dynamic yield curve, the anxious index or unemployment trends.
The big question is why do we introduce these indicators? Because they help us make data-driven, objective, and mechanic decisions in the marketplace. These indicators have a better track record than anything else we know, or the FED knows.
Therefore, you will learn to just follow them. We could be wrong, or we could be a little early. But on balance nothing has done better. Therefore, these economic indicators will help you to forecast the future.
And guess what, this does not only apply to trading stocks. This helps you if you are into real estate because you know a deflationary period of a stock market crash can also cause housing prices to go down. This helps you with general investments or businesses that you may own or manage at the time.
The beauty about the stock market and what you are learning here is really that it gives you perspective for so many other fields in your life. And you do not have to look at these indicators every single day, because they do not impact the markets every day. We look at this occasionally, we probably look at this more often than you do because that is just what we do, but you can just look at all this maybe once a month.
The “Campus Buy Signal” you will use to time market bottoms after major market crashes. You will be able to download this indicator into your own trading platform and use it on all stocks you may be interested in.