Every dog or cat has its own little personality. Like most animals, every bull market too has its own personality. Sometimes even every individual bull market leg has its own character and features.
Being aware of those idiosyncrasies may make the difference between making and losing money.
For example, the first installment of the QE bull market saw some violent corrections, such as the May 2010 Flash Crash and 21% S&P 500 (^GSPC) correction in 2011.
Since 2012 however, the S&P 500 and its other index cousins have been on cruise control with just minor speed bumps.
2013 sported some very clear and repetitive patterns. Those patterns have kept aware investors on the right side of the trade. What were those patterns?
3 Most Predictable Patterns of 2013
1) “Persistence wears down resistance.” This was probably the Profit Radar Report’s most commonly used phrase in 2013.
Persistence around resistance basically means that sideways trading generally serves as a launching pad for the next rally leg. This point was illustrated by the S&P 500 chart below (published by the Profit Radar Report on September 20, 2013).
2) Investors begrudgingly accept the bull market, and vocal bears are driving the bull market higher.
Although a number of sentiment bulls waived a warning sign early in 2013, the Profit Radar Report shared this observation and conclusion previously back in March 2013:
“The Dow surpassed its 2007 high and set a new all-time high last week, but investors seem to embrace this rally only begrudgingly and the media is quick to point out the ‘elephant in the room’ – stocks are only up because of the Fed. Below are a few of last week’s headlines:
CNBC: Dow Jones Breaks Record, But Party Unlikely To Last
Washington Post: Dow Hits Record High As Markets Are Undaunted By Tepid Economic Growth, Political Gridlock
The Atlantic: This Is America, Now: The Dow Hits A Record High With Household Income At A Decade Low
CNNMoney: Dow Record? Who Cares? Economy Still Stinks
Reuters: Dow Surges To New Closing High On Economy, Fed’s Help
We know this is a phony rally, but so does everyone else. We know this will probably end badly eventually, but so does everyone else. The market likes to fool as many as possible and it seems that overall further gains would befuddle the greater number. Excessive optimism was worked off by the February correction. Sentiment allows for further gains.”
According to the financial media, the S&P 500 (SPY) should have tumbled many times in 2013, but it didn’t.
Obviously there were still plenty of bears left to be converted into bulls, a process that drives up prices. It wasn’t until very recently that sentiment has become bullish to a degree that’s worrisome.
The simple investment trick to profit from these patterns has been easy. Stay long until you’re wrong.
When Are the Bulls Wrong?
3) But how do you know when you’re wrong? In other words, how do you maximize gains with the least amount of risk?
Here’s where an evergreen pattern comes into play. This pattern is so powerful, I call it insider trading.
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.
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