Join Mike Larson LIVE at The MoneyShow Philadelphia !

Join Mike Larson LIVE at The MoneyShow Philadelphia !


Take Emotion out of Markets

06/13/2019 6:00 am EST

Focus: STOCKS

Mike Larson

Editor, Weiss' Safe Money Report and Under-the-Radar Stocks

When markets become challenging it is important to look at the data and keep your emotions in check, writes Mike Larson.

Emotions are the enemy when it comes to trading and investing. But as humans, we all have them.

When stocks soar, we get euphoric if we own them but despondent if we don’t. When stocks tank, the opposite is true.

Just look at the last few weeks of market action. I’m guessing that if you were overloaded with stocks, you were worried when the Dow Industrials plunged roughly 2,000 points in May. You were also probably happy when the Dow surged 1,500 points in the first few days of June.

But what if there were a way to get off that emotional roller coaster? To evaluate the relative health (or lack thereof) and fundamental underpinning of stock market rallies? If you had that, it would help keep your feelings from getting the better of you, right?

That’s where an independent analysis of stocks can be helpful. In a broad bull market, anyone can be successful but in more challenging periods investors need an edge. Our Weiss Ratings, for example provide objective, time-tested, investment analysis on a multitude of fundamental and technical indicators for tens of thousands of stocks, ETFs, and mutual funds. The goal? To help determine which are (and aren’t) worthy of your hard-earned capital.

The Weiss Ratings BUY/SELL ratio track changes in the relative number of ratings upgrades versus downgrades. It speaks to the broadness (or lack thereof) in stock market rallies.

During the fantastic stock market run that followed the November 2016 election, both stocks and our BUY/SELL ratio rose in tandem. That meant the rally was being confirmed by underlying breadth and participation.

But look at this recent chart showing the evolution of the BUY/SELL ratio for common stocks over the past few years. It has been making a series of lower highs even as the S&P 500 has been making a series of (slightly) higher highs since early-2018.

buy/sell

Forget my opinion, or anyone else’s for that matter, the data tells us that market advances have lacked broad participation for a year and a half now.

I also rely on another indicator – known as the Weiss Ratings Market Barometer – to determine how aggressive or conservative my investing strategy should be. The Barometer distills signals coming from five separate financial indicators, three credit market indicators, and 15 economic indicators over multiple time frames.

When most indicators are pointing in a positive direction, I get more offensive with my strategy. When most indicators are pointing in a neutral or negative direction, I play defense. Just like the ratio I mentioned earlier; the Barometer has been more conservative for some time now.

I STILL haven’t seen the underlying market trends or indicators change. They caused me to get more cautious back in the first quarter of 2018.

What has happened since then? The broad averages have essentially gone nowhere. Plain-vanilla Treasury bonds have trounced equities when it comes to total returns. And defensive, recession-resistant, dividend-focused stocks have outperformed offensive ones.

In other words, my “Safe Money” approach has worked best for 17 months and counting. Rather than succumb to my emotions, I’ll let the objective data tell me when (or if) it’s time to change course!

So, what does this mean for you? I’ll go into much more detail this weekend during my events at the MoneyShow Seattle. There’s still time to register here in order to catch my presentations Saturday and Sunday at the Hyatt Regency Seattle hotel.

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