The stock market is so up and down it is bound to make any exchange traded fund (ETF) investor an emotional wreck. How can you prevent your emotions from consuming you and your portfolio?
The stock market tanked last year and the economy tanked along with it. Just when things looked like the worst case scenario, the market rallied and turned around. Then in June, the rally stalled out. Mr. Barry Arnold, head of the counseling service and editor of the advisory, tells us just why the market turned up when it ought to have turned down.
The Daily Buy-Sell Advisor reports that after the March lows, a chain of events occurred to indicate that heightened emotions were driving the economy. Chrysler went bankrupt and General Motors followed close behind. Banks and many non-financial companies were raising more capital, and the U.S. dollar was losing its grip and yields on Treasury securities were jumping higher with the yield curve getting dramatically steeper.
Wall Street was depressed and Main Street was gloomy bit the markets ran in the opposite direction of the investor sentiment. Says Arnold, “Emotions, especially at turning points, are a major driving force in bull and bear markets.”
This is counter-intuitive to common sense, and doesn’t make much sense, but isn’t this just like investing? Around three months ago the stock market was trading at 12-year lows, and today, stocks have climbed upward, although gloomy economic news keeps flowing.
You don’t have to fall prey to the emotions of others, or your own.
If you are ready to enter into the market, be sure to have a strategy in place and be aware of market trends. We use the 200-day moving average as an indicator, and if a fund falls 8% off its high, it’s time to get out. This is a simple and easy to implement way to keep your emotions at bay.
For more stories about trend following, visit our trend following cateogry.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.