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An Indicator For When The Market Has Topped

An Indicator For When The Market Has Topped

I scrolling through Quora recently and came across an interesting response to the question:

When will the stock market crash again?

The answer was: by using an indicator. The indicator in particular has apparently been used by over 70 years and seems to be very effective in timing significant market tops.

It’s called – The cumulative summation of advancing and declining stocks of the NYSE

Historically, the indicator is 100% reliable about predicting stock market tops.

How To Use The Indicator?

You need to chart a line of the indicator against the Dow Jones Industrials. As long as each higher high in the Dow has a corresponded high in the advance/decline index there is no bear market in sight. There can be 10% declines in the index without a signal, but nothing worse.

The beauty of the signal is that it tends to be early in signalling a significant decline.

So what we need to look for is a divergence in the cumulative summation of advancing and declining stocks against the Dow. When the Dow is reaching new highs but less stocks are participating – it doesn’t look good.

However, it can never be so easy in the world of finance. There are suggestions being made that almost as much as 54% of what comprises the NYSE no longer reflects individual stocks, and as such, clouds the effectiveness of the advance/decline line. More on that article here.

You can find the A/D chart at StockCharts.

Passive Investment Strategy – The Trident Portfolio

Passive Investment Strategy – The Trident Portfolio

On the constant hunt for a safe investment with good returns I happened across the Trident Portfolio when browsing Quora one night. Over the past 40 years it has returned  11% Compound Annual Growth Rate (CAGR).

Check out the link: Trident Portfolio

There are potential limitations using this portfolio moving forward as one Quoran points out. Bonds have been in a bull market for the past 40 years and may be responsible for contributing to that high CAGR of the Trident Portfolio.

At some stage I’ll perform some research on this strategy looking at different entry and exit points over the past century and see how it holds up before putting any money into it.