Trader’s Narrative

Check out these links from this weekend’s reading list at news.tradersnarrative.com:

• How to Write a Trading Business Plan - Limited Time $1097 Giveaway
• Independent Inquiry Panel to Investigate Causes of Financial Crisis
• A Walk Through Global Markets
• SEC Employees Get New Trading Ban
• Get a FREE Subscription to Traders Magazine
• Q&A with Charlie Munger (of Berkshire Hathaway fame)
• Thus Ended Capitalism (Dilbert comic)
• Why the VIX Isn’t Too Low
• IPOs Make a Comeback
• How To Lose Money The Right Way
• New Dilemma for the Dollar
• Trading and Investing: The Danger of Mixing Mindsets

Follow the link below to get much, much more:

And remember to check regularly since there are new links added everyday.

Week Ahead: Housing Data Deluge

There are many investing services out there and they continuously approach me to pitch their eBooks or services. I turn most of them down since they are not worth your attention and because what I recommend reflects back on me.

Among the few that I have no reluctance to recommend is Mike Swanson, founder of Wall Street Window. To find out about how Mike got started in trading and what his views are on the recent market, check out my recent interview with the founder of Wall Street Window.

Wall St. Window is $377 a year - which is about a $1 a day. With that you get a full year of access to Mike’s site, all his archives and his future daily commentary as well as a course he’s developed called Stock Market Mastery. Mike also does frequent videos that feature him and other professional traders and investors.

In this business, very few people stand behind their work but Mike goes above and beyond a 100% Money Back Guarantee. If you are not satisfied with the material and the information you learn from Wall Street Window, not only will you get a full refund but he’ll pay you to leave (yes, you read that right).

But this is not a “get rich quick” scheme so if that’s what you’re looking for, don’t bother. Swanson doesn’t sell signals, or systems or anything like that. Wall Street Window is all about learning to analyse and trade the market. As the saying goes, he doesn’t give you fish, but teaches you how to catch fish.

The reason why I’m mentioning Wall St. Window now is one of those rare times that Mike is about to open up the membership site to let in a few new members. Except for a few short weeks during the year, his site is closed to new members. You see, Mike already has a large membership base and he cares about delivering his best to them.

The market is at a precarious place here. We’ve just been through a brutal bear market and we’re not even sure if it is over or if this is just a deceptive respite before we see more pain. If you’re a trader or investor and want to find not only a competent trader but a community of like minded fellow students, Wall Street Window is for you.

Recently Mike finished writing “Mind Over Matter: Conquering the Inner Game of Trading” a 54 page eBook which he made available to the members of Wall Street Window. With his permission I’m going to share it with my readers so if you would like a copy, leave a comment below and I’ll send it off to the email you use. But similar to the opportunity to join Wall St. Window, this offer is only available for a few days. I won’t be sending any afterwards. So if you want it, act now.

You wake up, you sleep. The sun rises, it sets. The seasons change. Cycles are part of life.

Since the stock market is just another human activity, it too has patterns and cycles. There are many different ones spanning the short term (daily ebb and flow of intra-day trading) to the very very long term (kondratiev or sometimes: Kondratieff waves). Previously I mentioned the four year cycle and showed a long term graph of its uncanny timing ability.

Since we are starting a new year, I wanted to take a look at the 10 year cycle. The graph below shows the relative performance of the stock market in the different years of the decade.

Years ending with 1 and 2 have the lowest returns; years ending with and 8 or a 9, the highest. I get the feeling we are divining the entrails of the market (with about as much scientific rigor) but from this historical view, 2008 has the wind to its back.

Here’s to another great profitable year!

Is it possible to time the market using a system that is so simple, it only requires you to be able to count up to four? Can we invest for the long term using a system that only requires a few minutes of our attention every four years?

Not only is it possible, such a system has beaten the pants off the pros in the long term. Being so amazingly successful, it has garnered a name: the four year stock market cycle.

Many theories have been put forth to try and explain it. Some say it is due to the presidential cycle, some that it is due to the business cycle, some to astrology or other esoteric phenomena. While the reasons are up for grabs the results are quite clear. And they are the sort that makes EMH proponents pull their hair out in frustration. How can something so simple, so replicable, and so consistent exist decade after decade?

While academics debate it, you can use it to boost your long-term investment account. All you need to do is to watch for a low every four years. The start year is important, so I’ll give it to you: 2006. From that year, you can go back and forward in four year increments. Those years will be (in the future) or were (in the past) great times to invest in the stock market. Or to add to an existing investment portfolio.

Take the previous cycle: 2006. That was the last intermediate low. Before that, in 2002 we had the trough of the multi-year bear that resulted from the popping of the internet mania. The one before that? 1998 which was the trough from the Asian currency contagion that shook financial markets. Keep going and you’ll see that the four year cycle marks great buying opportunities in an uncanny way.

Of course, it doesn’t have a perfect track record. But it is a damn good one. Out of the last 27 four year cycles, only 5 of them have not been great buying opportunities. They were 1946 (flat), 1930 (ouch!), 1910, 1906 and 1902. You can keep going back in time but my chart (below) stops there:

Click to enlarge graph

For extra mojo, we can combine the 4 year cycle with the annual cycle. That is, we can take the best month within the year (historically October) that coincides with the four year cycle. But remember, the four year cycle is only a guide. No individual occurence has to follow the script to the letter. All we are interested in is putting the odds in our favour as we have detected them from historical observation.

The following graph shows the decennial performance of the Dow Jones Industrial Average. Think of it as putting the annual performance of every decade into a blender and mashing them together. We get a graph that shows the average performance of each year within a decade:

As you can see, year 4 has an unusual lift that the other years don’t. If you’re sharp, you’ll notice that years 7 and 8 also have some pretty good kick as well. This data is not showing the same thing as the four year cycle but it does present us with further proof that returns from the stock market are not random. If they were, then each year would show fairly similar performance.

Here’s an interesting headline from today’s Yahoo! frontpage:

“Get long and short term tips to invest in a down market” Sheesh… you’d think we’d just had a massive and prolonged decline! The market only fell around 6% since its mid-February top and already we’re being given tips on a ‘down market’?

Another notch for the sentiment picture.

Check out Mark Hulbert’s take on the February decline.