Mission statements exist for a reason. They serve as “anchors,” if you will.
They remind individual members of an organization of their core, unifying focus. And they ensure that short-term fluctuations don’t, over time, alter the organization’s long-term course.
I began with a simple mission statement when I developed Cycle 9 Alert years ago:
“Buy strong stocks… in strong sectors… and beat the market.”
Our commitment to this mission statement has treated readers quite well over the years. But in its simplest form, it can be a bit confining. Essentially, it paints us into a corner, limiting us to bullish positions… and just in stocks.
So over time, I’ve shared how our fundamental mantra is flexible, giving rise to a few variations of our core mission. These include:
“Bet against weak stocks… in weak sectors.”
“Buy strong assets… and sell weak assets.”
The first of these gives us the flexibility to capture profitable opportunities while stocks are falling.
And the second one opens, figuratively and literally, a “world” of opportunities – in foreign stocks, domestic and foreign bond markets, commodity markets and global currencies.
Underpinning all of these related mantras is a single principle. It’s so simple that most investors dismiss it, as if it’s too simple to be true. But it’s so powerful that it can make or break your chance of success.
That principle is: Don’t fight the trend!
I’ve shown through a number of research studies, as have others, how trading with the dominant trend is more profitable, and less risky, than trading against it.
Of course, this isn’t new information. I’ve written about this concept a number of times… and I’ll continue to harp on it because it’s that important.
I’m bringing it up today because the dominant trend in stock markets has changed dramatically over the last year.
At the beginning of 2015, seven of the nine sectors we track in Cycle 9 Alert were in a long-term uptrend. That meant they qualified as potential “buys,” according to the rules of our strategy.
And while a number of stock markets in other countries weren’t looking as strong as U.S. stocks, a number of them were still hanging on to their uptrends at the start of 2015.
Today though, stocks are much weaker, and a vast majority of the dominant trends are now negative, aka “bearish.”
Only two U.S. stock sectors are in an uptrend. And worse still, none of the 15 country stock markets I monitor are in a buy-qualifying uptrend.
Like it or not, these are the bearish stock market trends we’re being dealt as we begin 2016. And so we’ll play our hand accordingly.
The good news is that while some investors now have nothing to do but sit on the sidelines, or pray, we have a number of investment strategies that are designed to identify profitable opportunities even in today’s bear-dominant global stock market.
We’ll find those opportunities on the short side.
We’ll find those opportunities outside the stock market.
And, of course, if and when the dominant trend in stocks changes back to bullish – whether that’s in February, or not until 2017 – our strategy will automatically adjust, by “allowing” us to take bullish opportunities. But only once the dominant trends have turned up.
For now though, I recommend adjusting your mindset and acknowledging that we’re in a bearish market.
For active traders, a bearish market is neither “good” nor “bad” – it’s just “different.” And since we have the flexibility to play the short side of markets… and also to trade assets outside the stock market, via ETFs, I expect we’ll have plenty of action and profitable opportunities this year.
Just don’t allow yourself to get stuck in a stock-buying mentality. Whatever you do, please, don’t fight the trend!
Adam O’Dell, CMT, Chief Investment Strategist