New Bull Run Underway

New Bull Run Underway?

By Dr. Steve Sjuggerud, President, Investment U
Monday, April 21, 2003: Issue #232

According to one of the most successful analysts of our time, NOW could very well be the time to add to your stock market holdings. A simple look at one of this superstar analyst’s most important “rules” – and a quick analysis of current market conditions – shows that a bull run just might be in front of us.

But in order to take advantage of this opportunity, you first have to ask yourself one simple question:

Would You Rather Be Right… Or Make Money?

“Being Right or Making Money” – I love that title

That’s the title to Ned Davis’ book, and Ned is my favorite stock market analyst. In Chapter 1, Ned tells the story of how in 1978 Louis Rukeyser (who was the equivalent of CNBC back then) said, “Ned has been absolutely right about most of the major ups and downs” of the market from 1968 to 1978

Ned is a brilliant analyst. Still, to this day, he rarely misses a major up or down, and never takes a big loss. If we were to follow Ned’s highly successful approach, we’d probably be buyers of stocks right now. Let me explain

Back in the ’60s and ’70s, Ned Davis was personally struggling to really make money in the market, even though he’d been right in his market calls “If you’re so smart, why aren’t you rich?” he challenged himself. He realized that he had an enormous desire to be right. But in the end, this investing thing isn’t about “being right” – it’s about making money. So Ned changed the way he looked at things. He now runs his firm on what he calls “Davis’ Law:”

“The degree of unprofitable anxiety in an investor’s life corresponds directly to the amount of time one spends dwelling on how an investment should be acting, rather than the way it actually is acting.”

If The Trend Is Rising It’s Time To Buy

That means that if the trend is rising or if the price action is improving – regardless of how expensive stocks are – Ned is a buyer. He doesn’t try to argue with the market action, even if stocks are expensive, even if we are at war, or whatever.

If we are to follow the advice of one of the most successful analysts of our time, who never misses a market move, then we need to pay attention to the trend in prices. And what the trend is telling us at this very moment is that stocks are going up Most sectors in the U.S. and most stock markets around the world have good price action right now.

You’re probably wondering exactly what I mean when I say “good price action.” So let’s use a simple definition of “price action.” Let’s use the 40-week (or 200-day) moving average (they’re basically the same thing, as there are five trading days in a week).

When stocks are above their 40-week moving average, the price action is GOOD. Prices are higher today than their average over the last 40 weeks, so stocks are acting well. When stocks are below their 40-week moving average, price action is BAD.

So how is the market actually acting right now? And how do you measure this?

In his book, Ned says: “To enforce Davis’ Law, our models are at least 50% price or trend sensitive, which we believe means we can never be fully invested during a vicious bear market or never miss the bulk of a roaring bull market.”

If Ned Davis Is Right… It’s Time To Buy Stocks

If we are to pay attention to Ned Davis, then 50% of our investing decision should be based on price action. And the price action (at least judging by the 40-week moving average indicator) is GOOD, in most stock market sectors and around the world. If Ned is right, it’s time to add to your stock market holdings.

Now Ned follows hundreds of price action indicators to come to a consensus conclusion about price action. But the 40-week moving average is a generally decent gauge of the big picture. And the big picture has just recently turned positive.

If you don’t trust this move, that’s okay. If you believe that stocks are overvalued and deserve to fall, then best of luck to you. You may turn out to be right. Me? I’m increasing my allocation to stocks in my newsletter this month. In the end, my job is to make my readers money, not to be philosophically right about high valuations at this very second.

I do believe the high valuations will cause a day of reckoning for stocks – someday. But right now, I prefer to make money instead of being “right.”

If Ned Davis is right about price action (and he’s probably been on the right side of making money more than anyone during the course of his career), we may be able to pick off some gains in the stock market over the coming months.

Of course, if the price action reverses over the next couple of weeks, I won’t hesitate to take my chips off the table and move back to where I’ve been for years (on the bearish side). It’s actually what I expect to happen. But what I expect doesn’t matter After all, I don’t care about “being right” about a new bull run here my goal again is to make money for my readers.

Good investing,

Steve

Today’s Investment U Crib Sheet

Where do you stand? Do you want to “be right?” Or do you want to “make money?” If you do your homework and find as I’ve found that price action is now turning positive, then what you do with your money will answer whether you want to be right or make money
And remember we are just now seeing the first glimpses of positive price action. It can easily turn back to negative, right back where it had been for a long time. So the key is to incrementally increase your exposure to stocks, as the evidence gets stronger. That way, if necessary, you can incrementally decrease your exposure if price action turns south again.
Finally today, I want to remind you about a dynamic and highly interactive two-day course that Dr. Van K. Tharp and I plan to hold this June. It’s called Stock Market Mastery 101 and it will be held June 7-8, 2003 in Cary, North Carolina. During this unique event, Dr. Tharp and I will reveal 15 key “secrets” that you need to know to make consistent profits in the stock market. This information is not available anywhere else that I know of it’s truly a comprehensive presentation revealing exactly how the “market wizards” make money year in and year out. I hope you’ll join Dr. Tharp and me for this one-of-a-kind event. For more information please click here or call the Stock Market Mastery Headquarters at 800.385.4486 or 919.852.3994.

Good investing,

Steve

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