Since the start of March my inbox has been filled with emails from investors who are scared and worried about their investments and the market direction in general. Indeed recently I attended an investment conference where many of the presenters were discussing why everyone should be selling assets, buying gold and preparing for a financial calamity the likes of which no-one in our lifetime has ever seen. The doomsayers are certainly out in force as the market direction pushes to all-time highs.
In January and February of this year I explained why I was fully invested. Then in March I move to cautious but stay invested as the market direction turned from up to sideways with a bias toward weakness. In April I was back to stay invested but take smaller positions and close trades often. I have been asked repeatedly how do I have the confidence to keep capital tied to the stock market when it would appear that “Financial Armageddon” could be around the corner. Indeed as the market direction has set all time highs many investors are writing worried that we are on the verge of collapse such as 2008 to 2009. One investor wrote to say “I cannot sleep nights as I worry all the time”. Another investor wrote to say “I’m out of every stock and bought gold in 2011. What am I missing?”. Other comments include “Teddi I am truly scared”; “How can you stay invested?”; “I have not made any profits in two years because I am on the sidelines, help me” and finally “Help me to understand why this market is still up!”
Listening To The Doomsayers
Far too many investors are listening to the doomsayers. These are the analysts and market pundits who feed on the doom and gloom of investors. The doomsayers make their income through spreading doom and gloom everywhere. When market direction plunges the doomsayers come out from every corner of the investing world. When market direction takes off and moves to new highs the doomsayers are there to advise investors that stocks are on the verge of collapse. Any down day in the market direction and the media is filled with the doomsayers. They have incredibly high numbers of followers because people are drawn to the worst news. If a financial analysts had a “silver lining” blog no one would come because investors always want their worst suspicions confirmed and the doomsayers are happy to oblige.
But listening to the doomsayers can be harmful to investors’ portfolios as they reduce their invested capital at a time when they should be investing more. Even if investors “believe” that the doomsayers are wrong, there is always that nagging doubt which makes investing difficult. As one investor told me “It’s scary investing at times like this” and indeed it is scary for a lot of investors.
Market Direction Timing via The Doomsayers Report
Instead of listening to the doomsayers, use their rhetoric to time when you want to be investing. Since I primarily invest through Put Selling, I get the very best returns when the markets are in turmoil and volatility increases. Those just happen to be the time periods when the doomsayers are out in full force.
Years ago I developed a “doomsayers chart” which I use to know when the volatility is probably going to be higher and when there are great investing opportunities worth risking my capital in. My chart is based on when there are more doomsayers in the media and when their rhetoric reaches alarming heights. The more doom and gloom the better for my profits.
For example below is the past 10 years of when the doomsayers have been the most active regarding the S&P 500. You can readily see how often the doomsayers fill the media with doom and gloom. Let’s take this one-step further though and look at the “Degrees Of Doom” via a color chart I developed based on how often the doomsayers are in the media and how many articles I see published.
Market Direction Timing Via The Doomsayers 10 Year Chart
Market Direction Timing via the Degrees Of Doom
Below is my Degrees Of Doom Chart for the past 10 years. You can see my color coding index. When the extreme doom level is reached I pay particular attention. Very gloomy is also an excellent time to be investing and Put Selling.
Market Direction Time via Degrees of Doom Charting
Some of the time periods are worth recalling.
A. Was the first real stumble after the 2001 – 2003 market crash. Doomsayers were all over this correction as it was the “second shoe” scenario. Instead market direction continued higher.
B. Surprisingly doomsayers were not very dominant at all on the first market direction top in 2007 and on the second market top before market direction plunged in 2008, there was hardly a whisper.
C. As the market direction collapse worsened in the fall of 2008 the level of doom reached “Very Gloomy” and matched the same level as point A where the market was going to fall “a lot lower” as so many doomsayers predicted. A lot lower could be anywhere from 50 points plus. When you are a doomsayer you do not have to be specific. There are so many doomsayers out that they are lined up to appear on CNBC.
D. Extreme level of doom in March 2009 brought out all my capital with lots of trades, Put Selling and stock buying. This was the Financial Armageddon call by the doomsayers who predicted the markets would fall by at least another 25 to 30 percent. But the market direction had already collapsed over 50% and this was indeed the bottom. From here the market direction turned back up.
E. As the market direction down reverted back to up the first correction was labeled the start of the “second shoe” and the doomsayers spread the word that the rally from point D to E had been a “suckers’ rally” and a “dead cat bounce” as doomsayers love to use cliches. Level was extreme doom and doomsayers were as vocal as they had been when the market bottomed in March 2009.
F. A lot of gloom appeared on the 2010 market top. I had already sold most of my stock from the 2008 to 2009 market crash purchase. I did a lot of Put Selling. Most of my trades for 2010 can be found through this link.
G. Extreme Doom prevailed again in 2010 and the “second shoe” scenario was often repeated. Doomsayers found it hard to believe that the market direction up could continue without their “second shoe” scenario happening. Investors were told by the doomsayers that the market direction up from the bottom of 2009 had been just a bull rally within a larger secular bear and investors were going to get “hammered” here. Instead the Fed started quantitative easing II and the markets pushed higher.
H. Another very gloomy period in 2011 which started my Put Selling in larger quantities as the Federal Reserve had given no indication they would be stopping Quantitative Easing. The market direction continued higher from here.
I. Extreme Doom level as the market corrected over 20%. I was Put Selling heavily in 2011. 2011 trades can be seen in this chart.
J. This brings us to the extreme doom level we are presently in. Since March the doomsayers have once again been very vocal and the level of doom and gloom has reached extreme levels. As investors know I am busy Put Selling and trading the present market and a lot of the confidence to be trading is a direct result of my degrees of doom chart. Since March with extreme doom levels I have been earning wonderful profits all thanks to the increase in volatility.
Market Direction Timing via Doom Events
Market Direction Timing With The Doomsayers Summary
While certainly not scientific I have found my market direction timing through the doomsayers chart to be very good at helping to control any concern I may have about the market direction at different times over the past 10 years.
By taking the opposite approach to what the doomsayers spread throughout the media I have found that when they are the gloomiest I need to be the most invested.
The record has shown that the varying degrees of doom have been quite good at predicting when to be Put Selling and trading within stocks and when to be careful. Right now the degrees of doom are indicating extreme doom so obviously I am heavily invested.
Next time when you worry about whether to make that trade consider instead that if there is doom and gloom everywhere, it could be among the best of times to risk capital.
Internal Market Direction Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades for 2013