Tuesday, October 1, 2013

How to detect market plunges

No one including all the Federal Reserve chairmen and all the Nobel-Prize winners (actually many of them drove the economy to the brink of bankruptcy by betting wrongly) in economics can predict market plunges. The chairman gave a speech saying how rosy was the economy and in a few weeks, the housing market crashed. Many predicted correctly market crashes by pure luck and some even received Nobel Prizes and became famous. There is no model and formula to predict market plunges except this simple chart described in this book.  It is so simple that I do not claim credit but the credit in publicizing and tuning it.

It works for the last two market plunges and hopefully it will work to the next market plunge. The chart depends on the falling stock prices, so it will not detect the bottoms and peaks precisely, but it will prevent further losses and reenter the market for larger gains. The chart is very simple to use and there is nothing to buy or subscribe. It WILL predict the next market crash, but it may not give us ample time to prepare to exit and/or how far away from the peak as the last two. It also tells us when to reenter the market for the best time to make money.

How to detect market plunges
(Hit Enter on the Chart to display it full screen)

 Exit the market when S&P 500 index is below the red line and reenter the market when it is above the red line.
Market Plunge


I was shocked by the incredible return by using simple market timing (exit and reenter the market only 3 times from 2000 to 2013).

Summary info:
S&P 500
1-2000 to 9-2013
With Market Timing
Without Market Timing

Gain %
Annualized gained

Click here on how I calculated the returns. Actually it is far better than 400% by buying contra ETFs in existing the stock market. How many fund managers and/or investment newsletters can achieve the same performance? The above does not even spend time in evaluating stocks and dividends are not included in calculating performance.

To return to the market is important. With the chart and other hints (10 hints in my book), I returned to the market in 2009 and made 80% in my largest taxable account (I have the statement for proof).

It will not be as effective if many follow the same chart. Order the book before everyone follows the same technique.

Update 1/2017

From 2000 to 2010, there is only one false alarm as indicated as above. From 2011-2016, there are more false alarms. We can change the parameter to reduce them at the expense of detecting the plunge a little late.

The market before 2000 is quite different from the market today. Hence, I do not use the data before 2000.

This is one chapter of my book "Complete the Art of Investing". If it helps you, envision how 820 pages will help you. 

For more of my reasoning, check out the book described next. The Kindle has 850 pages (6*9) for $9.99. It could be the best $10 you ever spend. Paperback is also available.

The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.

My other book on this topic is Profit from coming market crash.

I challenged to have the best-performed article in Seeking Alpha history, an investing site, for recommending 5 or more stocks in one year after the publish date. The concepts for that article are discussed in this book.