Wiley Market Timing for DUMmIES

351 Pages·6.326 MB·English

Market Timing
FOR
DUMmIES
‰
by Joe Duarte, MD
Market Timing For Dummies®
Published by
Wiley Publishing, Inc.
111 River St.
Hoboken, NJ 07030-5774
www.wiley.com
Copyright © 2009 by Wiley Publishing, Inc., Indianapolis, Indiana
Published by Wiley Publishing, Inc., Indianapolis, Indiana
Published simultaneously in Canada
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Library of Congress Control Number: 2008939707
ISBN: 978-0-470-38975-1
Manufactured in the United States of America
10 9 8 7 6 5 4 3 2 1
Contents at a Glance
Introduction ................................................................ 1
Part I: Stepping into the World of Market Timing ........... 7
Chapter 1: Becoming a Market Timer .............................................................................9
Chapter 2: Peering Inside the Mind of a Market Timer ...............................................25
Chapter 3: Preparing Yourself and Your Finances for Timing ...................................35
Chapter 4: Charting Your Course: The Market Timer’s Edge.....................................45
Part II: Market Timing’s Methods and Strategies .......... 67
Chapter 5: Timing with the Reports That Move the Markets.....................................69
Chapter 6: The Seasons and Cycles That Infl uence the Markets ...............................87
Chapter 7: Digging In to Trends, Momentum, and Results .........................................97
Chapter 8: Timing with Feeling: Making Market Sentiment Work for You .............115
Part III: Applying Timing to the Markets ................... 129
Chapter 9: Timing in the Real World: Examining a Sample Trade ...........................131
Chapter 10: Timing the Stock Market .........................................................................145
Chapter 11: Timing the Bond Market ..........................................................................161
Chapter 12: Timing Foreign Markets ...........................................................................175
Chapter 13: Timing the Metals, Heavy or Not ............................................................185
Chapter 14: Timing Commodities: Making Money Down on the Farm ....................197
Chapter 15: Timing Currencies and Related Markets ...............................................213
Part IV: Timing the Sectors ....................................... 227
Chapter 16: The Timer’s Dream: Sector Investing .....................................................229
Chapter 17: Timing Financial Service Stocks ............................................................241
Chapter 18: Timing the Technologies .........................................................................259
Chapter 19: Timing the Energy Sector ........................................................................277
Chapter 20: Timing the Health Care Sector ................................................................295
Part V: The Part of Tens ........................................... 309
Chapter 21: Ten Game Savers to Know and Trust .....................................................311
Chapter 22: Ten-Plus Awesome Resources ................................................................319
Index ...................................................................... 325
Table of Contents
Introduction ................................................................. 1
About This Book ..............................................................................................1
Conventions Used in This Book .....................................................................2
Foolish Assumptions .......................................................................................3
How This Book Is Organized ..........................................................................4
Part I: Stepping Into the World of Market Timing ..............................4
Part II: Market Timing’s Methods and Strategies ...............................4
Part III: Applying Timing to the Markets .............................................5
Part IV: Timing the Sectors ...................................................................5
Part V: The Part of Tens ........................................................................5
Icons Used in This Book .................................................................................6
Where to Go from Here ...................................................................................6
Part I: Stepping into the World of Market Timing ............ 7
Chapter 1: Becoming a Market Timer. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Defi ning Market Timing .................................................................................10
Terms of Engagement for Timing ................................................................11
Timing Technique: The Secret of Success ..................................................13
Running Down Reasons to Market Time .....................................................15
The Nuts and Bolts of Market Timing .........................................................17
Financing your possibilities................................................................17
Analyzing the markets .........................................................................19
Setting your timing ritual ....................................................................20
Setting Realistic Expectations ......................................................................21
You can’t predict the future ...............................................................22
You can’t win every time ....................................................................22
Measure your success reasonably ....................................................22
Enjoying the Process and the Fruits of Your Labor ..................................23
Chapter 2: Peering Inside the Mind of a Market Timer. . . . . . . . . . . . .25
Finding Out How Wall Street Really Works ................................................25
Introducing the Federal Reserve .................................................................26
Uncovering the Psychology of Timing ........................................................30
Vigilance: Being a steady, not a fast Eddie .......................................30
Preparation: Acknowledging the Boy Scout in all of us ..................31
Execution: Pulling the trigger on the trade ......................................32
Picking Your Battles and Battlefi elds ..........................................................33
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Market Timing For Dummies
Chapter 3: Preparing Yourself and Your Finances for Timing . . . . . . .35
Defi ning the Role of Timing in Your Financial Plan ...................................35
Financing Your Timing ..................................................................................38
Considering Personal Matters .....................................................................39
Determining Your Net Worth .......................................................................40
Getting Tooled Up for Timing ......................................................................41
Setting up your trading account ........................................................41
Building your timing toolkit ................................................................42
Chapter 4: Charting Your Course: The Market Timer’s Edge . . . . . . . .45
Defi ning the Primary Trend ..........................................................................45
Introducing the Four Amigos: Signals That the Trend Is Changing ........48
Taking stock of the trend reversal .....................................................48
Riding the highs of breakouts ............................................................49
Getting through the lows of breakdowns .........................................50
Introducing Commonly Used Charts ...........................................................54
Candlestick charts ...............................................................................54
Bar charts and associated tools ........................................................55
Understanding Moving Averages .................................................................56
Trend and Momentum Oscillators ..............................................................57
The “Big Mac” of technical analysis: The MACD oscillator ...........58
Finding relative strength with RSI .....................................................59
Getting a Grip on Bollinger Bands ..............................................................59
Looking into the future........................................................................60
Thinking outside the bands ................................................................60
Making Technical Analysis Work: An Overview ........................................61
Looking for the setup ..........................................................................62
Buying on strength and on dips .........................................................62
Using trend lines as buy and sell points ...........................................64
Running down other important technical formations ....................64
Part II: Market Timing’s Methods and Strategies ........... 67
Chapter 5: Timing with the Reports That Move the Markets. . . . . . . .69
Understanding the U.S. and the Global Economies ...................................70
Homing in on an example ...................................................................71
Keeping tabs on the data mill .............................................................73
Getting a Handle on the Reports .................................................................74
Exploring Specifi c Economic Reports .........................................................76
Using the employment report ............................................................76
Taking in the Consumer Price Index (CPI) .......................................78
Perusing the Producer Price Index (PPI) ..........................................78
Making sense of the ISM and purchasing managers’ reports.........79
Considering consumer confi dence ....................................................80
Poring over the Beige Book ................................................................82
Focusing on housing starts .................................................................83
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Table of Contents
Taking in the Index of Leading Economic Indicators ......................84
Grasping Gross Domestic Product ...................................................85
Trading the Big Reports ................................................................................86
Chapter 6: The Seasons and Cycles That Infl uence the Markets . . . .87
Getting the Big Seasonal Picture .................................................................88
Glimpsing the Monthly Tendencies ............................................................89
The January effect ...............................................................................90
The turn of the month .........................................................................91
Timing Summers, Holidays, and Santa Claus .............................................91
Summer folly .........................................................................................92
Holiday fun ............................................................................................92
Santa Claus is coming to town ...........................................................92
Cycling with the Presidents .........................................................................93
Examining the cycles during two presidents’ terms .......................93
Using the cycle cautiously ..................................................................95
Chapter 7: Digging In to Trends, Momentum, and Results . . . . . . . . . .97
Trending with the Times .............................................................................97
Looking for trends by time .................................................................98
Secularizing the trend .........................................................................99
Using the short-term trend properly ...............................................101
Looking at the long-term trend ........................................................103
Spotting trend changes in the intermediate term .........................105
Examining Market Breadth .........................................................................109
Consulting the NYSE advance-decline line .....................................110
Analyzing the McClellan Summation Index ...................................112
Chapter 8: Timing with Feeling: Making Market
Sentiment Work for You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
Getting in Touch with Your Contrarian Self .............................................116
Going with Your Gut — and Your Charts .................................................116
Identifying greed cycles ....................................................................117
Identifying fear cycles .......................................................................119
Using Bellwether Stocks .............................................................................120
Gauging Feeling with Sentiment Surveys .................................................122
Using Trading Volume As a Sentiment Tool ............................................123
Finessing “Soft” Sentiment Indicators .......................................................125
Part III: Applying Timing to the Markets .................... 129
Chapter 9: Timing in the Real World: Examining
a Sample Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131
Setting the Stage for a Sample Trade ........................................................131
Sorting through a major mess ..........................................................132
Charting your way to the next step .................................................133
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Market Timing For Dummies
Getting the long-term picture ...........................................................133
Viewing the intermediate term ........................................................134
Getting Ready to Trade ...............................................................................137
Looking for the right opportunity ....................................................138
Tracking the trade .............................................................................139
Fine-tuning your exit point as things progress ..............................140
Reviewing your timing endeavor .....................................................141
Finding a Sequence for Successful Trading ..............................................142
Chapter 10: Timing the Stock Market . . . . . . . . . . . . . . . . . . . . . . . . . .145
Timing the Whole Enchilada ......................................................................146
Starting with the S&P 500..................................................................146
Timing and taming the Nasdaq 100 .................................................149
Timing the Dow Jones Industrial Average ......................................151
Timing Individual Stocks ............................................................................152
Bottom fi shing ...................................................................................153
Riding the momentum roller coaster .............................................154
Shorting the losers.............................................................................158
Chapter 11: Timing the Bond Market . . . . . . . . . . . . . . . . . . . . . . . . . . .161
What Makes the Bond Market Tick ...........................................................162
The give and take between Fed and bond market .........................162
Finding general hints about bonds ..................................................164
Tying economic reports to the bond market .................................165
Making Bond Timing Work .........................................................................166
Reasons to time bonds ......................................................................167
Buying bonds for hedging and diversifi cation ...............................168
Allocating time and money to bond timing ....................................168
Finding the right time for bonds ......................................................169
Chapter 12: Timing Foreign Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . .175
The Whole World Is One Market ...............................................................176
Considering the Currency Effect ...............................................................177
Timing Foreign Markets ..............................................................................178
Getting started ...................................................................................179
Dividing up your timing world .........................................................179
Choosing International ETFs ......................................................................181
Chapter 13: Timing the Metals, Heavy or Not . . . . . . . . . . . . . . . . . . . .185
Getting the Golden Touch ..........................................................................186
Treading carefully with gold stocks ................................................188
Choosing the best route for trading gold .......................................189
Rounding out the precious sector ...................................................189
The Industrial Truth: Timing Copper and Other Metals ........................189
Mining copper trades ........................................................................190
Trading steel, ubiquitous steel ........................................................192
Getting into aluminum .......................................................................193
Using ETFs to Trade the Metals .................................................................194
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Chapter 14: Timing Commodities: Making Money
Down on the Farm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .197
Following the Farming Action ....................................................................198
Getting a grip on the growing season .............................................198
Weathering heights ...........................................................................199
Turning to a commodity price resource .........................................200
Looking for opportunities in corn and beans ................................202
“ETFing” Your Commodities .....................................................................206
The PowerShares DB Commodity Index Tracking Fund ..............207
The Greenhaven Continuous Commodity Index ............................208
The PowerShares DB Agriculture Fund .........................................209
Market Vectors Agribusiness ...........................................................210
The rise of water ETFs.......................................................................210
Chapter 15: Timing Currencies and Related Markets . . . . . . . . . . . . .213
Diving into the Currency Markets .............................................................214
What makes currencies move ..........................................................214
The spot market rules the roost ......................................................215
Finding the Nuts and Bolts of Foreign Exchange .....................................217
Coring Down on Your Charts .....................................................................218
Finding the tradable trend ................................................................218
Keeping your perspective ................................................................219
Timing the subtrends ........................................................................221
Meeting the Major Currencies ...................................................................221
The U.S. dollar ...................................................................................221
The euro ..............................................................................................222
The UK pound sterling ......................................................................223
The Australian dollar ........................................................................224
The Japanese yen ...............................................................................224
The Swiss franc ..................................................................................225
Part IV: Timing the Sectors ........................................ 227
Chapter 16: The Timer’s Dream: Sector Investing . . . . . . . . . . . . . . . .229
Defi ning Sector Timing ................................................................................230
Analyzing the Markets with a Sector Approach ......................................232
Defi ning the Overall Trend .........................................................................232
Building — and Watching — Your Sector List .........................................233
Analyzing Index Components ....................................................................237
Getting Fundamental Not Sentimental As You Time Sectors .................238
Chapter 17: Timing Financial Service Stocks . . . . . . . . . . . . . . . . . . .241
Indexing the Banking Sector .......................................................................242
Looking for trades during tough times ...........................................243
When the good times return ...........................................................247
Looking for Profi t in the Brokerage Sector ...............................................247
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Market Timing For Dummies
Home Sweet Home: The Housing Sector ..................................................251
Finding a home in housing stocks ...................................................252
The mortgage sector .........................................................................254
Trusting the Real Estate Investment Trusts ............................................256
Chapter 18: Timing the Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . .259
Applying Timing to Technology ................................................................260
Chips Without Chocolate: The Semiconductor Sector ...........................263
Tracking down a trend ......................................................................264
Investing in semiconductor stocks ..................................................265
Taking a Look at the Hardware Sector .....................................................269
Getting Soft on Software .............................................................................271
Intersecting the Internet and Telecommunications Sectors ..................274
Chapter 19: Timing the Energy Sector . . . . . . . . . . . . . . . . . . . . . . . . . .277
Factors Infl uencing the Price of Oil, Natural Gas,
Heating Oil, and Gasoline ........................................................................278
Supply and demand ...........................................................................279
The geopolitical equation .................................................................279
The weather issues ............................................................................280
Are we running out of oil? .................................................................281
Charting an example ..........................................................................282
Relating Energy Stocks to the Underlying Commodities ........................283
Finding Timing Vehicles for the Energy Sector .......................................286
Crude oil ..............................................................................................286
Oil and oil service ETFs ....................................................................288
Stocking up on oil and oil service ....................................................289
Natural gas ..........................................................................................290
Heating oil ...........................................................................................291
Gasoline ..............................................................................................292
Perusing the Oil Supply Data Report: A Nice Routine
for Wednesday Morning ..........................................................................292
Checking other sources before Wednesday ...................................293
Reacting to the report .......................................................................293
Chapter 20: Timing the Health Care Sector. . . . . . . . . . . . . . . . . . . . . .295
The Real World of Health Care ..................................................................296
Diagnosing the Health Insurers ................................................................297
Introducing the big players ..............................................................298
Timing the HMOs ...............................................................................299
Glimpsing Big Pharma and Biotech ...........................................................300
Getting to the technicals ...................................................................301
Top-to-bottom analysis .....................................................................302
Minding Medical Care Delivery and Hospitals .........................................304
Making Moves on Medical Equipment .....................................................306
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Table of Contents
Part V: The Part of Tens ............................................ 309
Chapter 21: Ten Game Savers to Know and Trust . . . . . . . . . . . . . . . .311
Embrace Chaos Theory ..............................................................................311
Don’t Trade if You Don’t Have Enough Money ........................................312
Avoid Impatience to Live and Trade Another Day ..................................313
Never Trade Against the Trend ................................................................314
Trade with Your Plan Instead of Your Emotions .....................................314
Don’t Be Afraid of the Big Bad . . . Cash ....................................................315
Know When to Say When ............................................................................315
Fear the Reaper, Not Adaptation ...............................................................316
Set Low Expectations but Avoid Low Self-Esteem ...................................317
If It Ain’t Fun, Forget It ................................................................................317
Chapter 22: Ten-Plus Awesome Resources . . . . . . . . . . . . . . . . . . . . .319
Timing Web Sites .........................................................................................319
FibTimer.com ....................................................................................319
PMFM.com ..........................................................................................320
DecisionPoint.com ............................................................................320
StockCharts.com ................................................................................320
Joe-Duarte.com .................................................................................320
General Investment Information Web Sites ..............................................320
FederalReserve.gov ...........................................................................321
StLouisFed.org ....................................................................................321
WSJ.com ..............................................................................................321
Investors.com ....................................................................................321
Marketwatch.com ..............................................................................322
Trading Books ..............................................................................................322
Newsletter Resources .................................................................................322
Index ....................................................................... 325