06-30-2020: Knowing Exactly How Long this Trend will Last...

The second quarter of 2020 closed today with the Dow having the best quarter since the first quarter of 1987. 1987... hmmmm... seems like I remember something else that happened in 1987... Let's move on; it will come to me.


If you have read either of my books or watched almost any of my videos on the Presentations tab or read some of my previous blogs, you know 'EXACTLY' how to know 'EXACTLY' how long this current trend in the market will last.


All trends... market trends... fashion trends... socially bizarre trends... infection rate trends... the AAPL trend... the AMZN trend... Gold trends... Silver trends... Political trends... ALL trends... end at the same exact time. No... that "time" is not the end of the world, time. And, while the 'end-of-trend' may be on totally different calendar dates, they all have one major thing in common.


All trends, regardless of the 'kind' of trend will continue on their trend EXACTLY UNTIL THEY DON'T. I know... that's a bit disappointing after all the preamble, but just knowing that one immutable fact, that every trend will last until (exactly until) it doesn't is not only patently obvious, it is profoundly important.


When a trend is in play, all you know (other than by guessing) is the trend will continue until it doesn't (continue). If you are like me, I want to stay with a trend until it changes from a bullish trend to a bearish trend; or vice versa.


Now, here is the real rub...


If you are willing to suffer massive losses from time-to-time, and if you are planning to live forever, and you'll never need the money, then you 'could' simply rely on the fact that the stock market has, given enough time, ALWAYS trended higher. Hello buy-and-hole. The odds are that a forever-type view of the trend of the market means that it has never changed its trend. But, my oh my, there have been decades of losses and decades for the market to recover. The good news, again... if you don't mind suffering losses of 80% or more, never need the money and will live forever... you will eventually see a profit.


Then, there is the opposite end of the spectrum... The day-trader or swing-trader, where getting in and out of the market (or a stock) can change trend in moments of time.


I am a quant-based trend trader. I want to own equities and/or indexes as long as the trend stays far enough away from a baseline moving average. I use a 50-day, 100-day and 200-day moving average (depending on a number of mathematical factors), plus a calculation of volatility. Basically, if the price of a holding moves against me more than 'normal' volatility, then I have to assume the current trend has reversed and I no longer want to hold the equity. There are many moving parts to these algorithms, but in general, when an equity's trend reverses, I sell the position and take risk off the table. Why? Because, one of these days, when you least expect it, the market is likely going to crash and we want to be as prepared for that event as possible. Oh... now, that reminds me about what else happened in 1987... I'm sure you already know.


The first quarter of 1987 was a massively big quarter. Then, just a few months later (October 19, 1987), the market crashed. It was (and remains) the largest one-day crash (on a percentage basis) in history when the Dow fell by nearly 23% in just one day.


By the way, I back-tested my algorithms during that period of time and they triggered a stop on the Thursday before black Monday and was 100% in cash when Black Monday hit.


Does that mean the algos will accomplish the same thing if such an even were to occur again? Maybe or maybe not. Past performance does not provide any indication of future returns. In other words, the future markets may not be anything like the market of 1987. I cannot promise you that my algos will be able to keep us from a future Black Monday, but I am pretty optimistic. If you recall, just this year, the market began its 30% crash (not in one day) on February 24. My algos took us to cash on February 20... just 4 days before the massive downdraft. Hopefully, the math will keep us out of harm's way again, while we look for opportunities to grow capital when the trends permit it.

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