In our new section 100 Tips For Successful Long Term Investing we strive to collect 100 relevant tips for long term investors. At this point in time we have defined one third. These investing tips are timeless although some have a higher relevancy at specific points in time. In this article we present readers with the 5 most relevant investing tips for 2019.
This does not imply that all other investing tips are not important or irrelevant in 2019. It simply implies that some of them have a higher level of relevancy given current market conditions.
As said in our 15 leading indicators research which determine the dominant market trend at this point in time (as 2019 kicks off) we see this picture in global markets:
The general picture is that all global stock markets stopped falling right above major support. No major harm done yet, no signs of a 2008-alike scenario as of yet. The picture does not look bullish yet. It can go both directions, but at this point in time the bulls have the benefit of the doubt. The line in the sand: 2.50 for 10 year rates, 110 in the Euro, 1300 in the Russell 2000.
That said, which investing tips are most relevant in the current market environment?
Investing Tip #1 for 2019
The market is here to mislead you. The market is not here to please you, and the market does not care about you. Once you understand this, and consider this your baseline, you will understand the level of effort to be successful, and repeat successes.
There is quite some false breakouts and false breakdowns in recent months. This is typical in a volatile period in which markets are looking for a new direction.
For instance, 10 year Yields broke out into, seemingly, a new bull market. Simultaneously, U.S. stock markets broke out to new all-time highs. Both came down considerably. This is misleading, and requires patience, not more action, as an answer from investors.
Investing Tip #2 for 2019
A strict and disciplined way to identifying trends on charts is required. The most fundamental way to apply the ‘start with the chart’ principle is the top down approach: first study the monthly chart as it shows the ongoing dominant trends, then the weekly chart, only after this the daily chart. This is the right approach to understand trends. Only if and once patterns or opportunities on all 3 timeframes are in synch is it justified to do an investment. In other words the 3 timeframes have to confirm each other, not divergence.
In a changing and volatile market environment it is imperative to use charts. The most important thing to note here is that we are talking about charts of leading indicators.
The monthly charts of leading indicators is where big picture trends are visible. That’s why we have our 15 leading indicators with their monthly charts updated once per month. They reveal where markets are going, and will feature new trends.
Investing Tip #3 for 2019
Markets move in relation to each other, they do not move in a vacuum. Capital flows from one market to another market, considering that cash is also a market (any currency). This flow of capital can be identified by thoroughly analyzing chart patterns and trends in a handful of leading assets. They are primarily treasuries, currencies, leading stock market indices, gold, crude oil. The key point is that it is one primary trend that triggers a domino effect for other markets.
One good illustration of this investing tip is how capital has been moving out of stocks and into both bonds and gold. This has not yet resulted in a strong bull market in bonds or gold, but may become a trend anytime soon. That’s why it is imperative to watch the 125 level in TLT and the $1375 level in gold, as breaking above both price points would confirm a strong bull market for 6 to 18 months in these assets.
Investing Tip #4 for 2019
Capital flows between asset classes and markets cause temporary cycles. That’s the result of ‘intermarket dynamics’. These cycles typically last between 6 and 18 months. The key is to identify those market cycles, and understand that they are subject to change.
Arguably, a risk off cycle in markets started in the first week of October last year. However this needs to be proven. Also, we cannot know whether this cycle would last 6 or 18 months. In the latter case there would be plenty of downside potential.
That’s why close monitoring of a select few price points is crucial. It will bring clarity on the duration and character of the ongoing market cycle.
The illustration of Treasuries and gold given in tip #4 is very relevant for tip #4 as well.
Investing Tip #5 for 2019
Consolidations are very frustrating both for traders and investors. This is the type of situation in which the vast majority of traders and investors show no patience. They then sell with a loss, only to find themselves chasing prices higher after a certain time period. This is how Mr. Market works, and investors better understand this dynamic before falling victim.
Investors need to be prepared that 2019 will be all about consolidation, for sure the first months of 2019. During consolidations lots of patience is required. This is especially true for stock markets as an asset class around the world!
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