This Indicator Says Keep Buying Stocks
This article was originally published on this site
From 2013 to ’17, MarketWatch, Forbes, The Washington Post, and The New York Times, respectively, have written headlines warning about market bubbles…
Despite those calls, the market has charged higher. It’s up over 70% since 2013.
Mainstream media pundits say it’s foolish for you to invest in the market these days. Otherwise, how can you explain their many fear-inducing headlines?
But as I’ve written over the past week, you should actually be long in the market right now.
In fact, last Wednesday I showed you why it’s profitable to buy a forming bubble.
Today, I’m going to show you another method you can use to profit from the current bull market…
If you used this same strategy in the 1980s and ’90s, you’d have seen gains of 986%… And if you bought in during the current bull market in 2010, you’d be sitting on 114% profits today.
This Theory Gives You an Advantage
There’s a saying in finance that it’s possible to make money by buying stocks when a bubble is forming…
You can sell them at a profit because someone else is willing to pay a higher price.
It’s called the “Greater Fool” theory.
Greater fools are why bubbles form. In a bubble, people don’t care about value… They just buy at any price. That just keeps pushing prices higher.
But you need to be careful when playing the Greater Fool game.
When a bubble bursts, prices fall quickly… And you don’t want to be the fool holding a stock when it collapses.
Here’s how…
When to Beat the Other Fools
The mainstream media is bombarding us with “facts” about how the market is overvalued. And that we’re in a huge bubble. We disagree.
But as I told you before, the easy money is made by going long when a bubble is just starting.
The key to this strategy, of course, is getting out of the bubble before it bursts.
One of my favorite ways to do this is by using a “moving average (MA) stop.” (Another trick I use to time a bubble is a trend line.)
I’m not going to bore you with all the details of how it works. What you need to know is that I like to use the 170-week MA line.
Many years ago, I received an email saying the market follows this line. I wish I remembered who sent it so I could credit them. But I don’t.
When the S&P 500 is above the line, it’s in an uptrend. When it dips below that, it’s in a downtrend.
Here’s how that looks over the last 35 years…
If you followed the red line, you would have been in the market during most of the uptrends… And you would have exited the market before all the big drops.
The timing isn’t perfect. But it’s pretty close.
How to Beat the Other “Fools” Out There
This method keeps you in the market on the way up and gets you out when it’s going down.
If you followed this strategy, you would have earned 986% in the bull market of the 1980s and ’90s.
It would have only returned about 30% from 2003–08… But that was in the middle of the second-worst bear market in the past century.
And it would have kept you in the market since late 2010. Over that time, you would be up 114%.
Right now, the line is at 2,102. That’s about the same level as the trend line I showed you last Thursday.
You can use this trick to see what the fools are doing.
When the price is above the line, fools are rushing in. When it drops below, the fools are getting ready to rush out.
If you follow this method, you’ll beat them to the exits.
