The Best Market Timing Strategy

Though I have been relatively successful with market timing trades, many of which, have been illustrated here, there are often too few trades that seem profitable. I prefer to market-time, while remaining relatively market neutral. This seems counter-intuitive, but it can be accomplished by placing multiple "market-timing" bets, both short and long. Of course, this can't be done by timing the broad market, but rather individual stocks.

Finally, there is a great market timing program that doesn't require expensive software or upgrades and can be used with any broker or discount broker.

Day Trade: Short Market (SPY) at > $88.25

Day trade opportunity. At 12:47 EST SPY is trading at 88.28. Short SPY and sell half of position at $87.00 and other half at 86.25. If SPY rises to 89.00 increase short position by 25%

Update: This day-trade resulted in an avg. gain of $1.65 per share or 1.9%!

Deflation Now, Inflation Tomorrow - Long TIPS?

Look at the image above of the US monetary base.

While we may experience a slight bout of deflation as the world markets slowly collapse, once the "pipes" of the financial system are Roto-Rootered, this engorged monetary base is going to materialize in the form of massive inflation.

TIP, the iShares ETF, is a portfolio of Treasury Inflation Protected Securities (TIPS). It is currently trading at $95 versus essentialy a $100 par value. TIPS are like treasuries except they pay a smaller interest payment in return for having the principal increased by the amount of increase in the CPI. They are not adjusted downward for deflation. But, deflation is built into the current price. But the TIPs have a long time frame and are currently pricing in only very moderate inflation if any in the future.

A good long term investor will start buying TIPs at these CHEAP prices and keep buying if they fall more in the next year (as they are likely to do). In a year or less, I predict the discussion will have shifted back to inflation from the current concerns about deflation.

Dow Under 8300. Time to Buy?

With the down now approaching its 5 year lows, is now the time to buy stock? The answer is yes... and no. If you are short term market timing, today is a good day to raise your market exposure. We may not bounce off the lows, but if we do you could see 5% gains from today's price of $83 for DIA (with futures down almost 2% you may pick up DIA for $81 or $82 on Thurs). Sell if we hit 87 in the next 5 sessions (ending 11/19). If we go down further tomorrow, buy more DIA as low as $80.
Update: I thought this might be a week-long trade, but it actually materialized in one day. On Thurs, you could have bought for less than $82 (and I did) and then you would have hit your stop at $87 (it went on to $88, but you have to leave some profits). 6.5% one day trade. I must admit that this was much more luck than skill, but you have to take them when you get them.

If you are not a market timer, the best strategy is to dollar cost average with a twist. Pick a fixed portion of your cash to invest each week. I suggest 4%, but this number varies based on your time-frame. Unlike traditional dollar cost averaging, we will not blindly invest a fixed amount each week, but rather intelligently invest that fixed amount each week. Pick a day to invest (I like Tuesday). If the market is down on Tuesday more than 1% buy. If it is up wait until Wednesday. If Wednesday is down 1% or more invest this week's allotment now. Again, if Wednesday is also an up-day, wait until the next down day to invest. This method is dollar cost averaging on steroids. Since you are buying on down days only, you should pick up some extra yield from picking off the market noise.

Am I starting to finally sound like a bull? I hope not. I have been bearish for as long as I can remember, but at some point you have to be concerned about the upside if you are short. I now think the upside is far too big for shorts to do anything but sell off the highs of the session. No long term short trades are really safe.