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Welcome to MarketTechnician.com!

In our view the US stock market topped out in the middle of 1998. Yes, a few highly-capitalized Internet Bubble stocks took the cap-weighted averages like the S&P 500 and the NASDAQ 100 to new highs in 2000, but the common stock, the typical stock that most people own, has on average been in a sideways trend since 1998. We present two charts. The first, the Value Line Geometric Index, highlights the 1998 peak. The second, the S&P 500, highlights the consolidation / trading range since.

Value Line Geometric Index, highlights the 1998 peak

S&P 500, highlights the consolidation / trading range

In a long-term consolidation, like the one that we have been in for the past 14 years, market timing is paramount. As you can see from the S&P chart, stocks have returned little beyond their dividend yield, which was approximately 1.3% for a 1998 purchase. Meanwhile even the most simplistic market-timing system, a long-only moving average crossover, has produced positive returns that exceed buy and hold.

Simple moving average crossover system versus buy and hold, 1998 through 2012.

TypeTotalAnnual
Buy and hold18.3%1.17%
52-week67.8%3.64%

Buy and hold results are the returns based on the price of the popular S&P 500 exchange traded fund SPY from the 1998 peak to the end of 2012. System results are based on trading the SPY, from January of 1998 through December of 2012. Weekly data was used with a 52-week moving average. Only long trades were taken. The rules are: buy when price crosses above the moving average, sell when price falls below the moving average. Dividends for the fund were ignored and no credit was given to the system for interest earned while out of the market.

We think that the point is crystal clear. Market timing is not an option, it is a necessity. If a very simple rule can more than triple the market's return, imagine what a more sophisticated approach might be able to do. MarketTechnican.com is dedicated to market timing.

Enjoy and prosper,

John Bollinger, CFA, CMT

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