LunaticTrader

Investing with the Moon

Who buys new record highs?

Posted by Danny on March 30, 2015

Last week we asked a poll question and several readers have taken the time to put in a vote. More on the results later in this post. We also have the LT wave chart for April, but first we take our customary look at the S&P 500 (click image to enlarge it):

S&P 500

We got a pull back as was indicated last week. US indexes are sitting near major support levels again, and with another week of lunar red period to go they are at an increasing risk of falling further. The weekly reversal levels outlook is also very mixed, giving a situation that is going to resolve in one direction or the other. Which way? My technical indicators are all pointing down and at rather neutral levels, so nowhere near indicating a bottom at hand. It looks like more downside action is needed to clean out the market. But will we get it?

The LT wave has been doing well in recent months, and here is what it shows for next April (click image to enlarge it):

LT wave April 2015

In March we had the expected weakness in the first week with a low near the 14th. The 3rd week was especially strong with the highs of the month coming right on target.
For April a different pattern is projected. There is room for a weak rebound attempt until April 6th, followed by a very weak period until April 17th. If the market is to drop below recent support levels, then this is the time to do it. Then renewed strength until the 25th, before weakening again in the final days of the month.
Interestingly, the very weak period in the middle of April will be a lunar green period. The lunar cycle has been very reliable so far this year, but if the LT wave is correct then this will probably be a cycle inversion, with the market dropping during that green period. If so, a major low in May can be expected.

Last week we asked: “How often do you buy a stock that is at record highs?” This is the current result of the poll:

poll

We see that almost 1 investor out of 3 never buys any stock that is at record highs, and only 16% answer “frequently”. Half of the answering readers buy new record highs rarely or never, and 1 out of 3 does it “sometimes”. What this suggests is that most investors are trying to pick bottoms or time corrections most of the time. Only 1 out of 6 investors seems to use buying new highs as a deliberate strategy.
This also means that when stocks hit new record highs it is a small minority of buyers that keep pushing them even higher. Most investors are trying to wait for a correction to get in a bit cheaper, and if corrections are very shallow they typically miss out the entire move.
John Templeton advocated using “unpopular” methods and changing methods when your method becomes popular. Buying new record highs has been an unpopular strategy for years, and that may be why it has worked so well since 2012. Will it become popular again?

Good luck,
Danny

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