TIMING THE MARKET

Market timing is the strategy of making buy or sell decisions of stocks by attempting to predict future market price movements. The prediction may be based on an outlook of market or economic conditions resulting from technical and/or fundamental analysis. This is an investment strategy based on the outlook for an aggregate market, rather than for a particular stock because three out of four stocks follow the market's overall trend.  The most important step toward profits is to identify the Market Trend; this is 50% of the game! Trade in harmony with the trend.

To become a successful trader, you must learn to judge by the action of the market. It is the action of the market which carries the greatest influence with insiders. Dow principle: The action of the market itself is the best indication of its future course.

PREDICTION CONCEPTS FOR MAJOR INDICES:

1^st hour, 1^st Friday, 1^st month

The first hour of the trading session is the rudder for the day that furnishes clues about that day's direction.  The first Friday of the month may furnish us with clues for the month's direction, and the first month of the year may set the trend for the year.

Major Indices Trend lines

A line that is drawn over pivot highs or under pivot lows to show the prevailing direction and speed of price. The use of trend lines in multiple period time frames (Intraday, Daily, Weekly and Monthly) will indicate near term, short term and long term trend clues for future Market direction.

Major Indices Technical Trend Indicators
Moving Averages
Moving Average Convergence Divergence (MACD)
Average True Range (ATR)
Wilder's DMI (ADX)
Price Oscillator (PPO)

Market timing often looks at various moving averages.  Popular are the 50- and 200-day moving averages. Some people consider that if the market has gone above the 50 or 200 day average that should be considered bullish, or below conversely bearish.  Technical analysts consider it significant when one moving average crosses over another. The market timers then predict that the trend will, more likely than not, continue in the future.

Halloween Indicator

The Halloween indicator is a variant of the stock market adage "Sell in May and go away," the belief that the period from November to April inclusive has significantly stronger growth on average than the other months.  In such strategies, stocks are sold at the start of May and the proceeds held in cash and are bought again in the autumn, typically around Halloween.

January Effect

The January effect is a calendar-related market anomaly in the market where stock prices increase in the month of January. This creates an opportunity for investors to buy stock for lower prices before January and sell them after their value increases.  Therefore, the main characteristics of the January Effect are an increase in buying securities before the end of the year for a lower price, and selling them in January to generate profit from the price differences.

Four year Presidential Cycle

The first year following the election year is usually a disaster (2013), and with the market bottoming around August of the second year (2014) and the rest of the year is bullish (2014), the third year is the best (2015), and the fourth year, the first half of the election year is choppy due to uncertainty and the second half is up (2016).

Annual Seasonality

Trader's Almanac shows that the market year is broken into two six-month seasonality periods. From May 1 through October 31 is seasonally unfavorable, and the market most often finishes lower than it was at the beginning of the period. From November 1 through April 30 is seasonally favorable, and the market most often finishes the period higher.

End of December
In order to claim capital losses, many investors sell stocks that have declined in value throughout the year during the last trading days of the year.

Turn of the Month
Turn of the month is a term that refers to the tendency of stocks to rise at the turn of a month and fall in the middle of a month. This tendency is mostly related to periodic new money flows directed toward mutual funds at a beginning of every month.

Window Dressing
Many mutual fund managers attempt to make their balance sheets look pretty at the end of each quarter by buying stocks that have done well during a particular quarter. For many of these managers, hanging on to their jobs is more important to them than the best interest of their mutual fund's unit holders.

Pre-Holiday Rally
Due to general optimism, stock markets tend to rise ahead of three-day holidays in the United States such as Independence Day, Thanksgiving, Christmas, etc.

Monday Effect
For decades, the stock market has had a tendency to drop on Mondays, on average. Some studies have attributed this to a large amount of bad news being released over the weekend. Others point to investors' gloomy mood, which is especially evident during the early hours of Monday trading. If you're planning on buying stocks, you're better off doing it on a Monday than any other day of the week. If you're an experienced trader, and are interested in selling short, then Friday is the best day to take a short position (because stocks tend to be priced higher on a Friday), and Monday is the best day to cover your short.