Never Miss The Mega-Trend Again
By Dr. Steve Sjuggerud, President, Investment U
Tuesday, July 1, 2003: Issue #252
“The trick is to stay in the game long enough to get lucky.”
We’re only given “big” opportunities once in a while, so we need to make sure we make the most of them.
The problem is most investors do exactly the opposite of this and they’ll never have that one big winner that makes their investing career.
Today I’ll share with you one simple technique. It will allow you to stick with a winner as long as possible so it can become a BIG winner. It will also give you a good signal for when to stand aside. Let’s get started…
The Big Payout In Vegas
We’re off to Vegas, and we have one goal to stay at the poker table long enough for “luck” to “happen” to us for us to hit the big winner. What do we need? I’d say two things:
1. We need to protect our money so we’ll be able to play hand after hand until we get that hand with the big opportunity. This means folding early when things aren’t going our way.
2. When we’ve got a big opportunity, we’ve got to maximize that opportunity.
Sounds absolutely obvious, right? Amazingly, most people do exactly the opposite of this They don’t fold when they should to give themselves plenty of future chances to win. And worst of all, they take profits really early, assuring themselves they’ll never get the big payoff.
How To Stay In The Money
I ran some numbers relating to the Nasdaq Biotech Index (symbol: ^NBI) today, using a simple technique I’ll show you. The results were astounding This simple technique has only given three buy/sell “signals” in the last five years. But it sure has kept us in the trend and in the money. A quick look at what happened after these signals were hit:
October 1998: BUY (NBI went +236%)
November 2000: SELL (NBI went -21%)
November 2001: BUY (NBI went -1%)
January 2002: SELL (NBI went -40%)
March 2003: BUY (NBI has gone +30% so far)
The first “buy” signal flashed on October 19, 1998. It turned out to be a serious buy signal We were in buy mode for over two years. In that time, the Nasdaq Biotech Index rose by an astounding 236%.
Then came the November 20, 2000 sell signal, and it was a major one the Nasdaq Biotech Index dropped by 21% over the next 52 weeks. Next came a quick buy signal on November 5, 2001 that only lasted seven weeks (resulting in a loss of -1%), before the next MAJOR sell signal came on January 7, 2002
This major sell signal lasted 63 weeks-over a year. And in that time, the Nasdaq Biotech Index fell by an extraordinary 40%!
That brings us to the current signal, a buy signal that we got in March of 2003. Since that signal, the Nasdaq Biotech Index is up 30% already. Wow!
By following this signal, you were on board for the one major trend five years ago, and you are on the current trend. You were out while the biotechs tanked from late 2000 all the way through early 2003, with the exception of seven weeks. Now you’re back in.
Following The Trend The 40-Week Moving Average
What is this signal? It’s simple. It’s sticking with the trend. It’s the 40-week moving average
When the Biotech Index is above its 40-week average, that’s buy mode. And when it’s below its 40-week average, that’s sell mode.
When the Index is above its 40-week average, stock prices are acting better lately than they had been. That’s all we need to know. As long as the biotechs, in our example, are trading above their 40-week moving average, then we own them.
Instead of the 40-week moving average, you can also use the 200-day moving average, as there are five trading days in a week, so these two will give roughly the same results.
This was a profitable signal, and quite frankly, we didn’t have to know anything about biotechs. That’s a good thing, because when people start “speaking biotech,” my eyes immediately glaze over.
I’m not suggesting you just blindly buy everything that’s above its moving average, and sell everything below it. But this simple moving-average technique can be pretty useful for keeping you in the money.
A simple investment system built on two requirements-buying value and buying when the trend is in your favor-will likely do as well as any system out there.
So before you make your next “value” purchase, take a look at the investments chart, and see if it has broken above its 40-week (or 200-day) moving average yet. Judging by the biotech example, no matter how much value you see, it still pays to wait for the trend to be in your favor too it could be the difference between making 236% or losing 40%
Good investing,
Steve
Today’s Investment U Cribsheet
- So you can see the power of this indicator versus the Nasdaq Biotech Index, I’ve created a chart for you: http://www.geocities.com/sjugger1/z.gif.
- The specifics of the signal I used there were as follows: If the Biotech Index crossed above the moving average, I’d wait one extra week to see if the signal was “for real,” and then buy. Same thing for sells the index had to be below the average for two weeks.
Related Investment U Articles:
- Don’t Be a Knucklehead Investor: Why the Straightforward Approach is Often the Most Profitable
- Now is the Time to Buy Healthcare Stocks
- The “Biotech Super Bowl” Starts Tomorrow… Are You Ready?
- OraSureTechnologies: The Biotech Company Poised to Revolutionize Two Markets Worth a Combined $5.5 Billion
- Two Countries Bucking the Investment Outflow Trend in Latin America and Asia
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