“It never was my thinking that made the big money for me.
It always was my sitting.”
– Jesse Livermore, Reminisceneces of a Stock Operator
I really wanted to be a bear.
I’m naturally suspicious and the markets have been in an uninterrupted uptrend for years now. Personally, it’s hard for me to believe the markets are still bullish. But if there’s one thing that I’ve learned after 20 years in the markets, it’s that you can’t take the markets personally.
I spent the weekend looking over all of my market indicators and I have to reluctantly agree with old Mr. Partridge who said, “Well, you know this is a bull market!”
Old Mr. Partridge was the veteran trader amongst the peers of Jesse Livermore, the legendary trader whose market exploits were chronicled by Edwin Lefevre in Reminiscences of a Stock Operator. Old Mr. Partridge was the one that could keep his head when all about him were losing theirs. He’s the one that taught Jesse the most important lesson he ever learned – you’ve got to both be right AND sit tight.
It’s worth reading the entire quote in full.
“And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine – that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.”
So, let me share with you the most important observations of this past weekend which convinced me that we are still indeed in a bull market.
The first study that I did was to look at all of the stocks in the S&P 100 to see where each one stood relative to my proprietary indicators. This first group of stocks is all of the stocks that currently have an active Smart Trailing Stop on a buy position.
Note that the stocks in the above list that are bold are stocks that are currently in their Low Risk Entry Zone. These stocks have pulled back into the bottom half of their Smart Trailing Stop range but have not yet been stopped out.
This second group of stocks are those stocks in the S&P 100 which have been stopped out by their Smart Trailing Stop.
The first and most obvious thing that jumps out at me about these two lists of stocks is how much bigger the list of stocks is that have not been stopped out yet. In fact 74% of the stocks in the S&P 100 have not yet hit their Smart Trailing Stops. That’s a pretty big percentage.
The second thing that jumps out at me is how many huge winners have been generated by the Smart Trailing Stop strategy. Biogen, Capital One and United Health are all up more than 500% without being taken out by their Smart Trailing Stops. The average open gain across all of these active positions is over 130%. That’s the power of staying in your winners!
Finally, of the 28 stocks that have been stopped out by their Smart Trailing Stops, they have, on average, continued to fall. In fact the average gain across all these stocks since being stopped out is a negative 2.3%.
All in all, it’s great to see so many stocks behaving well and not being stopped out by their Smart Trailing Stops. It tells me that the market internals are relatively strong and the bull market is intact.
The last thing that I want to share with you today is from my own private, proprietary research. It’s a chart of the S&P 500 showing the current status of my core proprietary indicators:
- Smart Moving Average
- Smart Trailing Stops
- Time cycle analysis
- Sentiment indicators based on Commitment of Traders data and Put / Call ratio
There is a lot detail in this chart. If you click on the chart, you can open it up in a web browser and see it in more detail.
This critical chart is telling me several things right now:
- The Smart Moving Average is still trending up and the S&P is still comfortably above its Smart Trailing Stop. In fact the S&P 500 hasn’t even dipped into its Low Risk Entry Zone.
- All of the critical time cycles of the S&P 500 are either bottoming right now or will bottom very soon. The time cycles point to a bottom in the markets right about now and a bull market through at least autumn.
- Sentiment is still on the side of the bulls. The commercial traders (smart money) are accumulating futures contracts and the public is still buying more puts than calls.
So remember… don’t get too caught up in thinking about the markets. Most of all our so called thinking is really just the media agitating for our attention.
And always keep in mind the wisdom of old Mr. Partridge, “Well, you know this is a bull market!”
To the growth of your wealth,
Richard M. Smith,PhD