2017 has certainly been a mundane year in the financial markets, however, still very profitable for some investors I am sure. Having said that, this could certainly change in the near future. The mundaneness that is. Could this be the calm before the storm?
September just recorded its lowest level of volatility since 2007. If you are into cycles, we have had some very significant anniversary dates fall this year. We are 10 years on from the GFC, when the Dow Jones Index peaked on 9th October 2007.
Coincidently, we just passed the 30-year anniversary of 1987 Stock Crash that occurred on 19th October. The markets continue to grind up, with the Major US & German Stock Indexes having hit all-time highs again in October. So, does that mean a correction in the financial markets could occur again very soon? Some traders who study cycles and time maybe on the sidelines right now, while many are partially invested waiting to pour more in. Whatever your reasons for being on the sidelines, I get the reasoning. All-time highs of the major equity indexes, an unpredictable “nut job” egomaniac President, overvaluations…. whatever! Just know you are not alone.
You will be reading this article well after October 2017, so you will know exactly with hindsight if the cycles have repeated by now. I still trust that this article will give you some very useful and practical information. I use time counts like 30, 60, 90, 180 days, weeks, months and years from significant turning points on a market or stock to predict the next turn.
In trying to predict or forecast the turn of the market, we are merely isolating the potential time of the next turn of trend. Predicting the turns in the market is a fun and exciting part of trading and investing. It is not about being right, as we know how much luck is involved in being successful. My point is, a trader must stand by their opinions with conviction and commit to their trade ideas. As we are reminded by Daniel Kahneman in the brilliant book ‘Thinking Fast and Slow’, the Nobel peace prize winner states that SUCCESS = TALENT + LUCK. Not a very scientific formula or a scholarly one you would think, though from his research he found that stock picking, overall performance and winning on the stock market was random and involved a lot of luck. He states that most traders would be better off to buy some stocks and hold rather than trade them. It’s a little disheartening to read this as a trader. Though from my personal experience with trading and research of other traders, we know the common mistakes made by traders such as holding onto losers too long and cutting winners just as they get to profit.
The point I am trying to make is, anyone wanting to succeed in this business must develop the talent first. What defines talent is a high level of skill. Areas of skill range from mental skills, performance metrics, implementing and developing a consistently profitable trading system, a high level awareness or consciousness of self and resilience/coping skills. Luck is an interesting subject, because it conjures up ideas of being in the right place at the right time, making the right decision at the right time, or unintended or uncontrolled event ultimately changing the course of an outcome. So luck occurs without your control. If luck is related to timing, I believe we can increase our luck factor by understanding time as one of the many variables in the success equation.
So, in terms of time, where are we now in the asset cycle? If you’ve read any of the wonderful research by Phillip J. Anderson- author of ‘Secret Life of Real Estate in Banking’, he states we are placed in the 1st part of the upcycle. This means asset prices around the world continue to increase- driven by the US property market where we have seen a steady 5% annual growth rate according to the S&P/Case-Shiller National Home Price Index. Moreover, US Corporate earnings have shown great strength again this reporting season, and major economic indicators positive with PMI ‘s well above 50 & 60 in all the major countries. The US economy continues to grow with low interest rates and a weak US dollar. China continues to drive growth and the Asian region keeps thriving.
If you are an investor, looking for value in the market with indexes up at these all-time highs, trying to find an entry into the stock market is a question on many investors’ and fund managers’ lips. Like many of us waiting for a pullback. As they say, buy the dips. Easier said than done, especially when we see the bullish economic drivers of these markets right now. Also with potential US tax cuts, which would definitely serve the wealthy under this Republican Government selling a large portion of stock without any real reason might not be worth it right now, until better tax conditions are legislated. The ideal correction could come from time factors or a 5th leg Elliot Wave situation. Though fundamentally, why sell right now if you are a holder? I see no reason why all the major stock markets will not continue to climb in the next couple of years, however to find an entry or re-entry back is the big decision. This is where your resilience amongst the uncertainty will prevail in the long term. As a trader that trades futures, I know if you are looking for an alternative or an extra trading strategy to compliment your current long term buy and hold strategy, there are constant opportunities for trades on all markets like indices, currencies and commodities on the smaller timeframes.
There is no escaping the analysis, the research and the amount of time required to select the best stocks or times to enter your chosen markets. However, in your noble endeavour, may I remind you of one of my most favourite quotes by Mihalyi Czikszentmihalyi from his book ‘Flow’? He found, “that sustained and focused attention on work is possible because the creative person enters a pleasurable emotional state-a state of flow-when immersed in effortful activity. This intrinsic pleasure enables achievers to weather periods of uncertainty and discouragement on the way to success.”