Members Update                                                  012008

Market is Severely Oversold

The market is severely oversold so we should see a rally in the next few days. This rally may or may not be a profitable rally. We are at a point in this bear market that is tricky when following intermediate term market timing, so I will put out some updates to explain tricky! If you have been doing this for years you know all this, but for those that don't have years of experience this might help you work through these turns in the market that are ahead of us.

The main thing to remember is the first "sustainable" rally after the bear market is over is the most profitable rally for the next 4 to six years, you don't want to miss it. I said "sustainable" rally, it will normally take a few head fakes or false starts before we see the "sustainable" rally. So you say how will I know when this sustainable rally arrives? You or me or no one on the planet will know when it arrives. We must depend on the Managed Risk Investing Signal of either Tango5 or TangoETF (either will work in this case). No market is exactly the same, but the charts from the 1990 bear market will illustrate my point. 
Charts by Fasttrack www.fasttrac.net

Start with the first green tick mark to the left at the bottom of the chart(Nov 89). This is the first sell signal of the bear market, also illustrated with the oval on the chart. The red tick mark(Nov 90) was the end of the bear market and the start of the sustainable bull rally, also marked by the square on the chart. In between the start of the bear market and the end there were  total of six buy and sell signals. On the chart when we are in a buy signal the chart is red and a sell is green. After the original sell signal the first buy signal on the chart you can see is a small loser. The next buy signal is a small loser, and next buy is a small winner. Then we get to the sustainable rally which is the end of the bear market, and shows an explosive move to the upside. This is what you don't want to miss. In order to catch it you have to put up with these whipsaw small losing trades and not think the signal is broken and stop following it.

I might add that statistically, over the long hall, using a signal/rotational trade system like Tang5 or TangoETF normally has 70 to 80 percent winning trades. This means you have 20 to 30 percent losing trades. That sounds like a lot of losers, what makes this work is that your average winners are larger than you average losers. Normally about 2 to 1, so say 25% of trades you lose 1 dollar and 75% of trades you win 2 dollars, you do the math. It's a big winner! 

So if we have a rough stretch ahead of us, don't give up, follow the model. If I see something ominous I will put out an update. Hope this is clear and understandable. You can see by the upper chart, bear markets are where we get way ahead of the buy and hold approach. Long term chart bellow:

Also, if you are thinking about subscribing to TangoETF, now is the time, you want to catch that once in 4 - 6 years rally off the bottom of the bear market. It will be very profitable!

Laying in the weeds, ready to pounce , Don

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