Being right … or making money. That’s the choice we investors often face. Weve been warning of bearish signs in the U.S. Stock Market for weeks now. We’ve been wrong … but we’re still long.
There are a lot of reasons to be concerned about this market. Last week, we showed you that the CBOE Volatility Index (VIX) recently traded below 11 and was heading down towards 10. This is a condition we haven’t seen since before the market crash in 2008.
Even my time-cycle forecasts have been showing that the market should be topping. This was what we showed you last week. It looked like the S&P 500 was ready to move lower.
It hasn’t happened the way we thought it would.
Instead, the markets have continued to make new highs for the past three months since the elections. The S&P 500 is solidly in the SSI Green zone and hasn’t even touched the Yellow zone since giving us a new SSI Entry signal in April, 2016.
And it’s not just the S&P 500. The other major averages are all hitting new highs including the Dow Jones Industrials, the Nasdaq Composite, and the Russell 2000.
This uptrend could continue for a while.
In the past 40 years, the S&P 500 has had strong moves to the upside when the Volatility Quotient (VQ) started to rise from the 10% area. The only time this didn’t happen was during the bear market of 2007-2009.
If history repeats itself, we could see another year or even more of this strong upward trend. This has been a historically powerful rally.
It’s all over the news this week how a major mutual fund lost $600 million in the past week as the S&P 500 continued to defy gravity and undo their bearish bets.
We’re thrilled to say that we’ve learned to be wrong and still be long. It’s been one of the most impactful changes for the better in our personal investing. We no longer confuse my ideas about what might happen with what is still actually happening.
We’re still bearish overall on the S&P 500 in the short-term, but we’re happy to wait for the market to confirm my thesis … and we’re happy to be wrong if it doesn’t … and to still make money.
TradeSmith Team
