Amateur investors often mistake market rallies for long term price changes in the value of a given asset. This was clearly the scenario of the past few weeks and actually began brewing in January of this year when investors who had lost 60% of their assets in the severe bear market of 2008 decided to jump back on the band wagon and attempt to make up their losses. Virtually everybody, including the media, was convinced that we are still in a major bull market with no sign of a bear. We strongly felt that was an inaccurate assumption.
During the last few days, we have been receiving a lot of emails from subscribers wanting to jump in to TLT and TIP, the only two ETFs that we have been long for the past two months. We also have been out of all equity ETFs for several months, especially risky ETFs like EEM, EWZ, and QQQ. However, we have been positioned in US Treasury bonds when nobody wanted to buy them and the media was portraying US Bonds as a bad investment. Presently we do not advise betting against US bonds or the US dollar. We are on a verge of a major bull run for the US Dollar and the Treasury Bonds still have some leg to go. But the time to get in them has passed. If you are not in already, stay in cash.
Markets are cyclical. Unfortunately more than 90% of the investors start buying at the euphoric stage of the cycle (January 2011) and sell at the bottom of the cycle in an absolute panic (November 2008). This phenomenon has not changed since the great depression.
Smart investors must get accustomed to doing the opposite of the herd mentality, which waits for absolute full confirmation that the trend is definitely pointing up. Try to tune out all the media hype such as MSNBC or guys like Jim Cramer. In general, do not get distracted by the news. There is no money to be made by following the folks that sell news or focusing on issues like the US debt ceiling debate or the Greek default. Cycles cannot be changed by the media.
In order to be focused and not act on emotions, you must stick to a system. We think ETF Trade Advisor offers you that non-emotional trading system.