Let the market tell you what to do

UK Market Looks GoodThe VectorVest Composite is higher day over day and week over week, and thus the price column of the VectorVest Color Guard is Green as I write. Within the Green light is a black asterisk. This says that the signal from price has been confirmed by momentum in the form of a rising RT. Statistically this signal has a higher probability of success than a Green Light alone.

The Color Guard also shows a Green Light for the change day over day and week over week of both the RT and the breadth of the market. The situation of three green lights is similar to that last weekend and very positive.

The Primary wave is UP, the underlying trend is UP and has been confirmed by price. The most conservative BUY signal on VectorVest has been positive since the 31st December 2014. These are known as Confirmed Calls and make excellent entry points for longer term investors.

I have been congratulated by many for staying in the market while the Greece situation was at a critical juncture. All I was doing was following what the market was saying in terms of price, momentum and breadth. The VectorVest Market Timing System reacts to the market by measuring the latter three inputs in two time frames. There is no form of projection or subjective Elliott wave counts. It trades the market, not some (including my own) ego based forecast.

I am happy to report that my portfolio of conservative stocks is doing well, with Persimmons and Rathbones paying a very tasty yield over the last 10 days. Persimmons shocked a few by a large fall on Wednesday after the 95 pence yield was brought forward. It made up for the fall and lots more on Thursday and Friday.

The share closed at 17.64 and would seem well on its way to my channel top at around 19 pounds. At present including the yield, the investment is up over 20% in the first two months of the year. To construct the channel, please call up a 5 year weekly chart. Draw a trend line through the obvious bottoms and then a parallel live through the highest top. It’s a technique used by many to compute targets and it works really well. If you are a short term trader, especially with leverage, then it’s important to sell into strength. Longer term position traders can use a trailing stop and hopefully that will keep them on board for a much longer trade whilst ignoring the noise.

Barratt is a recent purchase, and the reasons for that I detailed last week. It’s done well, and in a similar vein to Persimmons is on its way to the channel top. In this case, the short term target is at (around) 5.50 pounds.

It’s important to stay nimble at this time. The FT100 has made a new high by a few ticks but fails to get any traction above 6950. I will be much happier when 7000 the figure is exceeded. Old highs are dangerous places, and it’s where the biggest shorts will be sitting.

The VectorVest Composite is rising but the momentum of the rise is poor with the RT just managing to stay above 1. The chart also shows the Composite rising in what technicians call a “rising wedge” or a “diagonal triangle”. These are both bearish formations and could easily precede a small pullback before further advances are made.

On a 6 month chart of the VectorVest Composite, please draw a trendline under the lows from the low on the 17th of December. Then draw a trendline on the highs from the high on the 28th of November. The market is at a decision point at the apex of the pattern, and I will be happy when the top trendline is breached.

A close above the top trendline of the pattern should precede a strong move upwards, and with the three Green Lights, I am happy to sit and allow that to proceed. A close on the Composite above 340 would be very positive

A close below the lower trendline would be a bearish situation which certainly cause the Primary wave on VectorVest to shift to Down. I have a way of determining the target from a rising wedge which is proprietary and based on my observations over the last 30 years. I talk about it at the seminars and on the webcasts. I will cover the pattern in the upcoming Manchester seminar on the 21st March. It’s a bit detailed for here, but the initial target points to a slight selloff. This should not interfere with the performance of my BIG HITTERS stocks to any meaningful extent.

Please try to stay in the moment and just react to what the market is telling us NOW. Take care of the moment (a daily bar for me), and the cash will take care of itself. You need to focus on executing your trading rules perfectly without fear or hesitation in the moment. The first step is to have some rules, and write the rules down. Are you a position trader or a short term swing trader? What determines entry? What determines exit? How many shares do you buy? These are a few questions to start with.

I have been trading for 30 plus years and teaching people to trade for nearly 20 at both retail and institutional level. In all that time, I have never met anyone who didn’t have some internal resistance to writing down their trading rules without a lot of pushing from me. Push through this barrier this afternoon and watch your performance soar.

To summarize, I am sitting, fully invested, in my band of undervalued stocks which have both high earnings potential and earnings safety. The market is trending up and there is nothing to do. I will be happier when the wedge I spoke of above is blasted out of sight.

David Paul

28th February 2015

4 thoughts on “Let the market tell you what to do

  1. Thank you for your helpful commentary. I’m a newcomer to Vector Vest. To date I’ve not had time to complete the video course but have been through the quick start course once. Subsequently I’ve weeded out my few “sell” shares and some of the overvalued shares in my portfolio. I’ve also set stop losses, something I’ve often neglected to do in the past – sometimes with unfortunate consequences. Must try to follow your advice about writing down a set of rules. On a few occasions I’ve tried to devise a trading / investment plan but have usually ended up making things too complicated and never finished the exercise.

    1. Hello Graham ….The quick start course is excellent and really all you need. I think its critical that you think of some simple rules. I think we are drawn to trading by freedom and then you hear some guy like me talking about rules. Maybe that’s where the resistance comes from. As I said I have never met anyone who did not offer resistance to writing down some simple trading rules. best wishes david

  2. I always liked the Vector Vest presentation style and the fact that you have local groups who meet together. Only thing stopped me buying into your service is that I am still tied into a five year offer from another company, ending later this year. Nothing wrong with them, but I just don’t relate well to their presentation style and haven’t made any money from using – or actually underusing – their services.

    Will come on board with you later this year.

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