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Buy Now?

I am going to let you in on a way to make money in stocks. “Buy low, sell high”. Sorry you already heard that one? Ok but the market is this ingenious machine for talking people into doing the opposite. I got a call the other night from an old buddy who had a hot tip on a restaurant stock, and he wanted to know if this is a good time to buy. When the market is on fire like this we all want to chase it. That big red buy button is soo tempting. Just look at it. My answer was: “I would not put new money to work here, I also would buy safety.” Yes we are in a bull market, read the New Momentum to see why, but this bull is looking a little tired and I would expect a pull back this summer. Let me go over a few facts here;

  • It is now more than 100 days since a 3% pull back, that has never happened in my records going back to World War Two.
  • We are over 20% above the 200 day moving average a classic overbought sign
  •  If you bought the S&P500 in January you are up over 19% -- that is two years of gains in a half a year.
  •  Bull runs are often in 26-week spurts and we are 21 weeks into this bull. 

Here is a picture of Thanksgiving and right now you should go bake a turkey, and be thankful. You also should open up a deck of cards and kiss the Queen of Diamonds -- she is the patron saint of traders. As I always say, Bulls make money, Bears make money and Pigs get slaughtered. This is no time to be a hero, play safe and conservative here.

This is a chart for you, please don’t get hung up on it, this is not a magic indicator. You can get the same results from drawing MACD over a chart of SPY. Click on it to enlarge it.

I drew some little green arrows for you. The green arrows are what we call buy low, that is when you sprout horns and go play raging bull. As you can see these cycles fade and it is time to be a little nervous lamb because we can see in the next few weeks they are taking Mr. Bull to the abattoir. I say that to be funny but the truth is a summer pull back will be mild, I guess 10% tops. So wait for a
good time to enter your hot tip stock, and today buy a nice stable ETF such as SPY, DIA or XLF, better yet TBT, with a near by trailing stop. There will be a better day to buy long shots.

So if you need a theme song for this time, here is is: Don't Go Chasing Waterfalls.

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.”
- Jessie Livermore