Tuesday, February 24, 2009

Long-Term Analysis

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Some of mine friends (not active traders) are asking what to do with their pension funds. So, I just summarized a few points that I think could be useful to everybody:
  1. If you are going to retire tomorrow it is too late to invest - think about how to save what you have;
  2. For the rest - do not be greedy, do not go into active trading, do not invest into options or any other speculative trading vehicle;
  3. Do not trust banks and portfolio managers - if you trust them your money they will buy personal jets and at the end you will be broken and they will be on the personal luxury boughts fishing;
  4. If you can invest into index derivatives (QQQQ, SPY, DIA...) or index tracking funds - index cannot file bankruptcy. If there is bad companies in the index they will be replaced by healthy companies;
  5. During the recession (stock market crash) stay in cash - do not look to reinvest in something other;
  6. When the stock market is back in the long-term up-trend you can move all the money from cash back in the market and start investing on regular basis using dollar cost averaging.

That is all - simple six points. The last two points could be confusing - you may ask "How should I know when to stay in cash and when to be in the market?". Again it is very simple - follow the money flow. Go in cash when you see that money flowing out of the market (investors are leaving the market) and start to invest when you see that investors are coming back in the market. For this purpose could be used volume based technical indicators applied to the indexes and exchanges. As an example I would refer to two charts I saw at


S&P 500 analysis 2000-2006

S&P 500 analysis 2007-2009
Based on the SBV Oscillator (volume based technical indicator) you supposed to have your pension funds in cash since December 2007. When you should be back in the market? - When you see SBV Oscillator is moving back after it crosses 20% line, it will indicate that investors going back into the market.

Keep in mind that with pension funds (long-term investment) it's usually one signal a year and you do not pay for service to see this indicator. You may sign up for free trial at www.marketvolume.com take a look at this indicator and then resign up for free trial again in 3-4 months.

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