The 200-day moving average is arguably the “most watched” technical market indicator in the world.
And as you know, it’s the basis of the Buy-Hold-And-Preserve strategy I shared with you in Module 2: The Power of Systematic Investing.
There isn’t anything particularly special about the “200” in the 200-day moving average, other than the fact that it’s become industry standard and, thus, widely watched.
You could just as easily use a larger number for a longer-term view.
Or you could use a smaller number for a shorter-term view. That’s what we do inCycle 9 Alert. It allows us to be especially quick at adapting to changing market trends.
Regardless whether you follow the 200-day moving average, or a slightly faster or slower one, it’s imperative that you follow the “rules” of your Buy-Hold-And-Preservestrategy.
Those rules are…
- Buy (and hold) positions while prices are above the average.
- Sell positions once prices fall below the average.
I’ll give you a few examples of the value of the “sell rule” in a bit.
But first, let’s take a quick tour around the world and see which markets are “buys” and which are “sells,” according to the rules of the Buy-Hold-And-Preserve strategy.
Major Global Indices
U.S. stocks are doing a lot better than foreign stocks at the moment.
We touched on this last week, in U.S. Versus the World. But you can also see it clearly in the 200-day moving averages.
All four of the major U.S. stock indices are still trading above their 200-day averages, while all major foreign stock markets are trading below their lines in the sand.
The take-home here is simple: You should be invested in U.S. stocks, not foreign stocks, at the moment.
Top 15 Global Economies
To drive that point home, consider the stock markets of the top 15 economies in the world.
The United States is the only one that’s currently a “buy.”
Have a look…
Clearly there’s some pain in foreign stocks right now… and according to the rules of the Buy-Hold-And-Preserve strategy, it’s best to avoid (or short) them.
Of course, just because U.S. stocks are doing better than foreign stocks at the moment doesn’t mean you should buy just any U.S. stock.
As is usually the case, some U.S. sectors are performing better than others.
In fact, as the next table shows, about half the U.S. sectors are “buys” and half are “sells.”
As you can see, the current market environment is not a “rising tide lifts all boats” one. You’ve got to be selective in which sectors you buy, and which you avoid (or bet against).
That’s what my Cycle 9 Alert service is all about, as I explained in Module 3: Maximizing Profits from Today’s Hottest Sectors and Stocks.
In fact, we recently locked in a 33% profit on a bullish play on the health care sector (since it’s in an uptrend)… and an 80% profit on a bearish play on the utilities sector (since it’s in a downtrend)!
Determining each sector’s trend is the first key to success, with both the Buy-Hold-And-Preserve strategy and my Cycle 9 Alert strategy.
Currently, we’re seeing a positive trend in consumer discretionary, technology, energy, and health care stocks. All other sectors have, for now, fallen into negative trends and are best to avoid.
The Value of a Sell Rule
You’ve probably heard the allegory of the frog in (slowly) boiling water…
The water is getting hotter, putting the frog in danger. But since it’s getting hottervery slowly, the frog never notices… and so he stays put until it’s too late to escape his death-by-slow-boil fate.
Well, that’s exactly what happens to investors who don’t have a “sell rule.”
They watch as their stock holdings lose 10%, first…
Then 20%… then 30%…
And before they realize it, they’re down 50% or more. They’re “cooked!”
The “sell rule” in the Buy-Hold-And-Preserve strategy is specifically designed to prevent this from happening.
Sure, you won’t ever sell a stock precisely at its “peak” using a sell rule, like the 200-day average. But that’s not the main goal of the sell rule.
Instead, the sell rule is designed to prevent small losses from turning into large (potentially catastrophic) losses.
I promised to give a few examples of this in action…
Brazilian (EWZ) stocks are currently 33% below their late-January “peak highs.” But anyone who followed the Buy-Hold-And-Preserve strategy’s sell rule would’ve gotten out within just 12% of those highs.
Chinese (FXI) stocks are currently 22% below their 2018 high. But the sell rule called for getting out within just 13% of the peak.
Italian (EWI) stocks are now down 17% from their highs. But you could have gotten out within just 8% of their peak by following the strategy’s sell rule.
These are just a few examples of how you can use the Buy-Hold-And-Preservestrategy to ensure you don’t get “cooked” by a deteriorating market trend.