Frugalnomics

There is a constant message that the stock market is too complicated to determine when any given stock or even the whole collection of the market is over priced or under priced. The only given is that the market as a whole rises and therefore you should put your money into the market routinely and often in order to take advantage of any random drops. This is generally called dollar cost averaging. However, if this is the case then how come the large institutional investors pull their money in and out? It’s because the market in the short term can be irrational.

The technique of stock market timing involves looking at various financial indicators like unemployment, GDP growth, earnings and the like, technical indicators like moving averages, Fibonacci retracements, and trend lines, and mood indicators like volume, RSI, and MACD to determine if the market has swung too far one way or the other.

The retirement system is geared for only long positions. Since the average investor wants to take advantage of the tax savings they are forced to buy more and more long positions regardless of the timing. This is asking for over bought positions within the market. Especially within individual stocks that make up the major indexes. This gives institutional traders the ability to short these stocks knowing there will be retirement investors to buy their short positions. Then when the stock price plummets the retirement investors can’t get out.

Using a portion of your investments outside of retirement account, or even just moving your retirement accounts to cash when these indicators line up on longer term down trends can save you the majority of the pain of major recessions. Often retirees have to wait years for the portfolios to return. Sleep at night by making some money on the down side and see much better overall returns in your investments when you learn stock market timing techniques.