The 821x system is a trend following system. However, it’s not enough to know the direction of the trend for a trade idea. We also have to stay in touch with the direction of the market as a whole. We always want to have the wind at our back. This is even more important in a down trending market where even “good” stocks gets dragged down with the “bad”. Very few stocks make it through a bear market unscathed.
So what is the evidence that the market is currently in a primary downtrend? First off, the S&P 500 is below a DECLINING 200 day moving average. Furthermore, the definition of a downtrend is lower highs and lower lows. The market just made a pronounced lower high and lower low that is visible even on a monthly chart.
By the end of the first week of trading in 2016, my retirement account was almost completely in cash as my remaining positions flashed 821x sell signals one by one. By the middle of the following week, my IRA was completely in cash as our model 821x trade at the time triggered a sell. There is no absolutely no sign of an end to the current down trend. It may take MONTHS for the market to heal and the primary trend to reverse. I am thankful that the 821x system has moved my money out of harms way.
Many beginner DIY Investors feel like they have to stay fully invested all the time because “their cash isn’t growing if it’s on the sidelines”. It’s important to remember however, that when stocks go down, the value of your cash is actually increasing in that you can buy more and more shares. In fact, market declines are what set up some of the biggest and fastest gains as the downtrend comes to an end and the market reverses back up, refreshed.
When looked at this way, one starts to understand that maybe we should embrace a bear market. This is obviously much easier to do when most of your money is safely in cash.
Before I finish, it’s important that I ask and that you answer the following questions honestly:
- Do you know how to identify a potential market bottom?
- Would you know when it’s appropriate to start aggressively buying stocks again?
Unless you can confidently answer yes to both questions, you absolutely should NOT put your retirement accounts in cash.
If you are on this site, I generally assume that you are a do-it-yourself investor or at least an aspiring DIY investor. You are someone who wants to take an active role in growing your investment accounts by executing smart, higher probability trades.
However, when the market starts tanking, average investors start freaking out and do stupid things that hurt them in the long run. Just in case any of these people have stumbled in, I want to make clear that average investors SHOULD NOT be flipping their long term retirement accounts into and out of cash. They will likely miss the resumption of a bull market which would put their long term financial goals at risk. Know thyself.