As mid-term traders (as opposed to long-term) we want to consistently make money whenever the financial markets give us the opportunity to buy near the lows and to sell near the highs. It is called “How to make the greatest percentage return with the least possible amount of risk.” Our goal is not to catch the very top of the market or the very bottom, but to consistently make money for our subscribers and our own personal portfolios. We treat both the same.

We’ve had several of our clients asking us why we issued a sell signal at this stage of what appears to be a bull market. And yes, indeed, this market could go much higher. Here is why we decided to sell now and take a sure profit.

On Thursday February 9th, when the news came out that Apple’s price has reached all-time high, the message to the public was that the stock market was stronger than is the reality. Then the Greek bailout agreement occurred. In addition, a separate deal regarding U.S. banks handling foreclosures hit the street. Much to our surprise none of these announcements resulted in a lift to the market.

We have also been tracking the commodity markets because they tend to lead the stock market. However, most of these hard-asset ETFs have been lagging behind the market and forming bearish patterns. During last week all of a sudden the corporate insiders were selling at much higher ratio to buying. Last, but not the least, VIX hit a low level of 16 which indicates complacency on the part of the average investor.

If we can make double-digit profits then it doesn’t matter if we are the most brilliant forecasters of the market. We shall monetize our healthy gains now and wait like a patient old fox for our beloved TLT to drop near 100 by this summer. Then we will start accumulating Long term US treasuries in anticipation of a bear market, which is inevitable.

These days bearish investors are excited at market opening and nervous at closing. The current market trend is to open lower, drop immediately and then an hour later to start clawing its way back to either closing flat or even higher than its previous day close. This bullish phenomenon is not very comforting to bearish traders.

QQQ (Nasdaq 100 index) has already made an upside breakout to reach a decade high and SPY (S&P 500) is almost 2 percent away from its 2011 high. Once we get a blast upward, the bears will panic and they will go to cover their short positions. That can only intensify the surge in the market. Last Friday, when we got the strong employment report, the rush to cover shorts ensured that we did not get the intraday drops of January, where the market opened high but closed lower. We are now in a different ball game.

As the bears start moving into bullish territory we will start preparing to exit the rally. It could be the end of February or March. But it is not yet. VIX, the volatility index, is getting lower. The flock investors have started moving some funds into equities by selling out of treasuries (TLT). Corporate insiders have started some selling but not at an alarming rate. The US dollar has some more room to go down. We have not reached the market top yet but all the important signals indicate that we are getting close.

The following article is worth reading in order to understand how late in the game the media starts changing course. This article was posted on January 30th, when the market had already rallied more than 20%.

(MarketWatch) “It may be a good time to buy, but not to sell.”

Investors who are fully invested in Treasuries are going through a lot of anxiety, trying to make sense about how they missed the recent rally. Once they shift gears out of safe haven assets and into risk assets there will be a vertical rise in the stock market. You will notice then that TLT’s daily trading volume will decline significantly. That will be the time for us to start selling our risk asset ETFs and become interested in buying safe haven ETFs such as TLT and TIP (short-dated US Treasuries).

There will be a time during the next few months to move into the long-dated Treasuries (TLT) when they plunge from these overbought levels. This will happen when S&P 500(SPY) breaks through the magic 1400 level. The media is still fixated on negative topics such as Greece, Spain, Italy, Portugal and the Euro plummeting. They fail to mention important information such as the US dollar index slowly dropping and the Euro going up, which are important barometers. This quiet development is a bullish sign for the equity markets that the media and unsophisticated traders are failing to notice.

The media keep reporting that stock market volumes are low. That is because the hedge funds are all piled up into the Treasury market, which is the flavour of the times, trying to squeeze out some net gains in order to justify their outrageous fees. They also have a fair number of short positions in Euro and equities. When SPY gains another 4 percent then watch how the media and the analysts will become bullish or shall we say they will finally get clarity that indeed the market is gathering momentum. However, the real reason will be that the short-sellers are systematically being taken out, resulting in volumes substantially increasing.

The greatest rallies or plunges in the market do not happen quickly. It gathers momentum slowly with a pattern of lower lows when it’s bullish and lower highs when it is bearish.

The following article recently showed up on the MarketWatch website. It is somewhat late at this stage of the rally. And as we post this blog Friday morning February 3, 2012, TLT and the U.S. Treasury markets have dropped significantly, at market opening.

Stock funds have nowhere to go but up

Flock investors will eventually become concerned over missing the big rally. When they start pouring money into the equities wanting to participate in the party, it will be time for us to leave the party that started at the end of October 2011. Within the next couple of months, much like the October 2007, this market will flush out all the bears and short-seller investors. The investors will start buying at the highs and our fingers will be on the sell button for our long positions in equities and corporate bonds. We may be a few weeks or months early. However, we don’t want to be leaving the stadium when everybody else is trying to leave.

TLT and the US long-dated treasuries will come down hard below their 200 day moving average. Bill Gross will get hurt for his poor call of the market again. When the dust settles and TLT comes down to earth once more, then we will become interested in buying TLT about 18% lower than the current value.

Trading software and programs that look for pattern recognition and the various moving averages are very limited in what they can offer an investor/trader in these markets. You will get whipsawed with these programs. Investor psychology is the rule of the game and anyone who can anticipate the herd’s next move shall prosper in the mid and long term.

As long as the U.S. dollar index is above 76 and Volatility Index (VIX) above 15, it would be safe to stay invested in risk assets. The final stages of this rally could end with a dramatic rise in the S&P and Dow in the near future.

Suddenly everybody is getting fidgety, restless, and frustrated with this market. The media is full of doom and gloom. Most investors are becoming inclined to close out their recent long positions because they can’t tolerate this constant weekly up and down market. Memories of 2008 and February 2009 are still haunting some of the most sophisticated investors. The media is not helping. This is a classic market bottom forming environment. Patience will pay off handsomely.

As an investor, it is detrimental to conform to the norm and follow the herd even though your fear instincts tell you to close out your positions in risk asset and get into cash or Treasury bonds like everybody else. There is no shortage of bad news and sensationalism in the media and it can easily derail your mind and drag you down. After all, as the media tells you day after day, Europe is a mess, the U.S. is going to go down because of high debt level and unemployment, and there is continued political unrest in the Middle East.

Ironically VIX, the fear index, is showing lower highs and progressively dropping. VIX is a very reliable signal for the timing of trades. The stage is getting set for a stronger rally than even the contrarian investors anticipate. And when it does go full steam, there won’t be much of a window in which to get favorable prices.

Try to avoid the media brainwash. The current extreme sentiments are more often experienced at market bottoms than at market tops. We reckon that there is high probability of a powerful rally sooner than later.