Market Cycles

When investing in stocks it’s important to understand market cycles and the stages of them. We’re the Stock Marketeers, and we’re here to help you through it.

Market cycles are, per Investopedia.com: “Trends or patterns that may exist in a given market environment, allowing some securities or asset classes to outperform others.”
The term “Bear Market” is synonymous with “up-trending stock cycle”
Like this!
Just as the term “Bull Market” is synonymous with “down-trending stock cycle.”

Pro Tip #1

- There isn’t a “set-in-stone” amount of time that a market cycle lasts, up or down.

Explained:
Bear markets are generally shorter than Bull markets (thankfully.) However, the “money” in the first two years of a Bull market. After that, you get a lot of back-and-forth price action. Which leads us to pro tip #2:

Pro Tip #2

- Bull and bear cycles don’t usually end easily.

Explained: It takes a few months of back-and-forth, volatile price action to wear out the onboard investors. After this bucking bull ride, major investors have thrown in the towel and are not willing to continue pushing the current market direction. Crowd psychology has a lot to do with it, but we’re not psychologists; just investors.

Pro Tip #3

- Bear markets usually bottom out while economic indicators are still looking gloomy, and business is still in a downtrend. Conversely, Bull markets usually top when economic news is cheery and price projections are through the roof.

Explained: Why? Glad you asked. Because in pro tip #4...

Pro Tip #4

- The stock market is a leading economic indicator, not a lagging or coincident one.

Explained: Therefore, the current market cycle can turn around, despite the economic news being passed around. It’s a leading indicator because the stock market is composed of the thousands upon thousands of brilliant minds of investors. Making the market extremely perceptive to news, events and economic conditions. The market not only reacts to news as it breaks, but predicts and discounts future economic events.

Pro Tip #5

-Capital goods industries are generally late movers in cycles.

Explained: If you see them come to life after many moons of an uptrend, watch out. What are capital goods industries? Here are a few:

- Construction (services and raw materials)
- Aerospace and Defense
- Construction (machinery)
- Agriculture (machines)

The keyword here is “raw materials.” Things that go into making other things. That’s what capital goods are.

As a quick example of this, in the good ‘ol “2000-tech-bubble” crash, the industries supplying electronic capital goods (equipment, supplies, hardware, etc.) were the last movers of the cycle.

Pro Tip #6

- If the “laggards” are leading the market, watch out!

Explained: If you’re, say, more than two years into a bull market cycle and see dull stocks coming to life, it’s a bad sign. If you see that, the large institutional investors are placing their bets on the lower-performing “defensive” or “safer” stocks. These lower-performing stocks don’t have the strength or support to continue driving up-trends upwards.

Pro Tip #7

- Extraordinary Popular Delusions and The Madness of Crowds by Charles MacKay.

Explained: Excellent book. It really gives you a perspective on how cycles are controlled by “group think” and collective thought. We’ll toss it on the recommended list if you’re interested in finding out more about why they start and end as they do.

So there you have it! Figure out which cycle you’re in now, (1st year Bear market, late-stage Bull market? Etc.) use it to your advantage, and your portfolio will thank you.
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Why Technical Stock Resistance

Adobe Technical Stock Resistance

1) ADBE Stock Resistance

- It’s a place where Adobe stock prices are likely to stop and pullback. See the above resistance trend line A?
Dutch Stock Market Resistance

2) Dutch Stock Market Resistance

- Notice the above trend line A? It’s been attracting Dutch stock sellers. Another technical resistance line.
Australia Stock Market Resistance

3) All Ordinaries Index

- Another predictable pattern, yes? See how predictable the multiple selling happened here?
Amazon Stock Resistance

4) Amazon Stock Resistance

- Round numbers have the magical power to stop prices from advancing further. See another round number below?
AMD Stock Resistance

5) AMD Stock Resistance

- Notice how the $10 resistance has been touched and approached couple of times? Another future resistance.
Apple Stock Resistance

6) Apple Stock Resistance

- Another perfect example of a down trend stock resistance line. Why? It’s likely to become a future resistance line.
Brazil Stock Market Resistance

7) Brazil Stock Market Resistance

- As prices rise, up trend resistance lines can offer opportunities for taking some profits off the table.
France Stock Market Resistance

8) CAC 40 Index Resistance

- Another round number 4000. Notice how it has been approached, touched, and pulled back couple of times?
Chevron Stock Resistance

9) Chevron Stock Resistance

- Again, see the magic of round number effectively working here? How the $80 attracted stock sellers.
Cisco Systems Stock Resistance

10) Cisco Systems Stock Resistance

- Perfect example of a down trend resistance line. Notice how it has been touched many times?
Germany Stock Market Resistance

11) German Stock Resistance

- Technical stock resistance is an emotionally charged area. See how many times they sold around 8000?
Dow Jones Composite Resistance

12) Dow Jones Composite Resistance

- Another beautiful up trend resistance line for profit taking. See how it kept attracting sellers?
Dow Jones Industrial Average Resistance

13) Dow Jones Index Resistance

- See the power of a round number here again? Sellers have used it over and over again for profit taking.
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Beware of Stock Tips

Beware of stock tips! No matter how convincing or profitable they may seem, they will eventually lead to calamity.

Ever hear a juicy tip? The kind that you know is going to make you money?
I have, too. More than a few times. Except, instead of making a killing from them, I usually end up going bust.

Hey guys, Alan here with the Marketeers. I was reading a book on Jesse Livermore recently, and the subject of stock tips came up around the office. So, I thought I'd write a little blog post on the subject.

Do you listen to tips?

I don't. Jesse Livermore doesn't. Most of the greatest stock market traders don't, either.

So why do it?

Because it offers the allure of making a quick buck. Let's be honest here, you would probably much rather make money by clicking the "buy" button when someone tells you to than pouring over pages upon pages of historical financial statements and charts.

But listening to stock tips won't make you money in the long run. Fundamental analysis, technical analysis, historical precedent and doing your own research will.

Back in Jesse Livermore's day, tips came in the form of a buddy, colleague, or associate telling you some information they had on a stock.

Nowadays, the game's a bit different. We have the internet. If we want to make a "quick buck" in the market, instead of asking a friend for a tip they had, we turn on Mad Money, CNN, Yahoo Finance, MSN Money, etc. etc. With most financial media outlets, you have "pundits" giving their "expert" opinion on individual securities and the markets. These are the stock tips of the 21st century. Happy birthday.

These "gurus" are pretty convincing. With millions of people following them, their opinions on stocks are considered worthwhile and valid. But, if you've read any of our other articles, you would know that we're not big fans of opinions.

And the darndest thing is, they don't even have to tell you to straight up "buy" or "sell" a certain stock. All they have to do is mention it, state an opinion on it, and millions of people are influenced. Even if you don't buy into it, their opinions can consciously or unconsciously influence you. I'm not trying to get into psychology here, but I'll give you an example of a time when I *cringe* was influenced by a tip:

Costco. (Ticker symbol COST). I had read in the news all things good about it. It paid its employees a high wage, was raising it's dividend, the CEO was one of the best, etc. etc.

So, I looked into the fundamental figures and thought "Eh, not too bad, I guess I'll buy."

Well, long story short, I was shaken out of my position and cut my losses at 8%. That's actually kind ofridiculousconsidering the chart looks like this:

Yeah. With a graph like that you have to try pretty hard to lose money. But I did.

If I had done my own analysis, I would have bought on a pullback to it's moving average line, and held on to it in a more long-term fashion.

But no. I was influenced, whether I liked it or not, by the warm "fuzzy" news I had just read about the company and purchased because I "had" to have a position in it.

Don't let my stupidity happen to you.

Do your own analysis. Come to your own conclusions. Keep your own investment counsel.

It's true that some news is good. For example, earnings reports, whether company management is buying or selling their own stock, stock splits, etc. But it can be grossly overdone.

So, whether it's a friend, family member, a good looking guy on the news, or Warren Buffet himself, beware of stock tips.

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