Tuesday, January 29, 2013
If you weren't willing to buy stocks three months ago, you shouldn't be buying them today.
Three months ago, the S&P 500 Index was trading at 1,360. It was down 7% from its mid-September high. And less than 25% of stocks were trading above their 50-day moving average (DMA).
In other words... stocks were on sale. Shoppers could find plenty of bargains.
On Friday, the S&P closed above 1,500 for the first time in five years. It's up 5% just for the month of January. And now, 92% of stocks are trading above their 50-DMA.
Outside of precious metals, it's hard to find any bargains today... Yet shoppers are rushing into the market to pay full price.
That's a mistake.
I'm not saying stocks will fall from here or that today's investors can't make money. But there's a good time and a bad time to buy stocks – just like there's a good time and a bad time to buy skis, swimsuits, and lawnmowers.
We have the opposite condition in the stock market today. Take a look at this chart showing the percentage of S&P 500 stocks trading above their 50-DMA...
The blue circles on the chart indicate when less than 25% of stocks were trading above their 50-DMA. The red circles show when more than 80% of stocks were above their 50-DMA.
Here's how that chart lines up with the action in the S&P 500...
As you can see, anyone who bought stocks in the previous red circles – and held through the declines – is still making money today. But you can do far better by simply waiting for the blue circles.
Like I said earlier... anyone buying today can still make money. But you'll do far better if you follow this simple system and wait until less than 25% of stocks are trading above their 50-DMA before aggressively jumping into the stock market.
Best regards and good trading,
There aren't many bargains in the stock market today. But one precious metal is setting up for a terrific trade from a risk/reward standpoint. Jeff says it has about $1.50 of downside versus more than $10 of potential upside. Get the full story here: The One Precious Metal I'm Buying Today.
The broad S&P 500 Index is up more than 5% already in 2013.
Small-Cap Russell 2000 Index hits a new all-time high.
Palladium prices break out to a 16-month high.
Garbage collectors Waste Management and Republic Services touch fresh 52-week highs.