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A Bad Idea Whose Time Has Come


The cme4pif Bill Bear lines have crossed!


You can lear about my simple system in Cme4pif School Lesson One.
If you are one of my followers who is a passive investor following my simple system now is the time for you to make a mistake and sell. Yes I said a mistake. Passive investors simple put their money in to a big ETF like SPY or FV and  make market returns, often beating most mutual funds. However under my system when the Bull Bear lines cross you go to bonds, cash or money market funds. Well right now avoid bonds, but now is the time to call your financial advisor or online broker to go in to cash or money market funds.  There is an 80% chance that in a few weeks this will be the wrong move. It is  common for the Bull Bear lines to cross and then rally. The reason is simple, this often where many smart guys get out, once the sellers are gone in come the buyers.

OK so this is a bad time to sell? – No this is a good time to make a small mistake. I know that sounds confusing, but look at it a different way. When the market goes up it tends to gather steam slowly, up moves are gentle as the market “climbs a wall of worry” and people come up with reasons not to get in, but eventually get pulled in one by one. Then we have a few small corrections, then finally a crash like we had in 1987 or 2000. A crash is quick and violent; the market drops sometimes for months and all those nice gains can be wiped out. Right now the Bull Bear lines have crossed, if this is a correction then a slow bounce up is coming, and the lines will cross back up and you can get back in. That is called a whipsaw and it is part of the game. A whipsaw will mean you will now miss out on a few small percentage point of gain. However if this is something bigger the Bull Bear lines will keep dropping and you will miss a portfolio killing crash. Here is the last Whipsaw in 2011 you missed under 4% of gain:

The Bull Bear Lines caused you to miss 4 months of the 2009 to 2015 run, during the last four months of 2011. It was a mistake caused by a whipsaw but the price you paid was tiny compared to safety you got. The crash of 2008 cut your wealth in HALF. Look at the crash of 2008 in this chart:

I am already seeing on many indicators signs of recovery, and they may be right, but if it is head-fake you would do well to avoid it. The Buy the Dippers might be caught out this time. Many of the reasons for the sell off were in this article 2 weeks ago, and these factors are still true so there are many reasons this plunge might go on. Also if you read my Sept 6 2015 market comment there is a lot of hard currency leaving China and the Chinese are selling U.S. debt. This could be a very big disaster.

So yes, it probably this is another whipsaw false alarm, but when a fire bell rings in a large building, it is time to leave, false alarms happen more than major fires, and pull backs happen more than crashes, but why take a chance when the down side risk is so high?

From 2009 to now we have watched this as the markets went up about 20% per year. That is not natural, the average return is supposed to be 9%. So we are due for a pull back to bring us back to average. This might not be it, but if you were burned in 2008 you know now is a good time for caution. Step aside until the danger is past, then buy back in when the Bull Bear lines tell you to. This system made you a good return for 5 years, now comes the small penalty for safety.  





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