Ignore This Sell Signal

View in browser Our biggest moneymaking investment idea ever? Here's why... It involves a medical breakthrough based upon new Nobel Prize-winning science. Just one U.S. firm has locked down nearly every patent behind this technology (over 700 worldwide). The founder of this company is the same man who founded one of the most storied biotechs of all time. His newest venture is close to securing unprecedented approvals from the federal government. BOTTOM LINE: This could become the most talked about technology breakthrough of our lifetime. Go here for the details. Tuesday, December 2, 2014 | Issue #2428 Technical Tuesday: How to Avoid the Market's Fake-out Christopher Rowe, Technical Strategist, The Oxford Club When I played Little League baseball in the 1980s, one popular batting strategy was to "lay off" the first pitch. The strategy was a fundamental tenet for some Hall of Famers and was said to increase batting averages. This principle holds true when it comes to technical analysis, and I think the tenet applies to today's market. I'm going to lay off the various "sell signals" we are seeing now or soon will. Many technical indicators share the same rule: "Ignore the first sell signal in a new bull market." Why am I going out on a limb here and applying a rule that generally applies to a new bull market? The key is to understand the true severity of the recent October sell-off. Obama's Been Collecting Millions Thanks to WHAT??? The president has quietly been collecting as much as $5 million over the past few years... thanks to a VERY surprising source. It involves an extremely profitable kind of investment that most Americans usually can't even touch. But we've found a backdoor way you could get in... Starting with just $11. And you'll be SHOCKED when you see how much income there is to be made. Details here. While most people saw a sell-off in the S&P 500, down only 7.4%, internal market indicators showed much more severe damage. The type of damage we saw, in many respects, was akin to the market pullbacks in: 2011 - The mini-crash as the U.S. credit rating was downgraded. 2010 - The mid-year confluence of the "flash crash" and the BP oil spill, with the backdrop of the European sovereign bond crisis. 2008 - The global credit crisis. 2006 - Arguably unexplainable. Headlines called it fear of inflation, oil prices and interest rates, but to me it looked like institutions that saw the coming crisis dumped a ton of stock. 2002/2003 - The bear market bottom after the dot-com bubble. But damage is a good thing when it comes to the next leg up in a bull market, because the stock market is a place where, as long as the bull market stays intact, what doesn't kill it makes it stronger. That's why each of the above periods was followed by prolonged price moves higher. There are many types of stock market players, from conservative investors who would never sell a single share of stock to the traders who are in and out at the first sign of opportunity or trouble. When a strong wave of selling and fear hits the market, those who are dating stocks and hoping for a one-night stand are quickly "washed out." While they jump ship, investors who married their stocks are still in the game - many adding to their long-term positions. With fewer scaredy-cats owning stocks, fewer traders are likely to sell at the first sign of trouble. That, in turn, means stock prices are more likely to have long uninterrupted moves higher. So why do technicians tend to "take the first pitch" and ignore the first sell signal after a "washed out" market? Let's take a look at history. View larger image I circled the first Relative Strength Index (RSI) sell signal in the new bull market, after the 2002-2003 bear market bottom. (For a basic explanation of RSI sell signals, click here.) To paint a picture of why we ignore the first sell signal from most technical indicators, I must explain the market dynamics at a bottom. At this point, the market was coming out of "washed out" territory. Convinced the stock market was far from bottoming out, individual investors capitulated, many cashing out of their 401(k)s and IRAs. The large majority of speculators left were short sellers covering their positions. Short sellers are people who sell first (hopefully at a high price), attempting to profit from downside moves by repurchasing the stock at a later date (hopefully at a lower price). Many people think bullish heroes stepping in and buying the hell out of cheap stocks is what creates market bottoms. But in reality, investors just aren't that brave. The buying pressure that creates that first bottom comes from short sellers buying back ("covering" or "closing out") their short stock positions. That's why we see the ultra-sharp spike off an important low. It's a function of short sellers covering their positions - some locking in profits and some limiting losses. But all are in panic mode as they know bottoms are formed three times faster than tops. Thus, the sharp spike created by short sellers is the final stage of an important bottom. But because the nature of the trading dynamic causes such a sharp move higher, it sets up for conditions that appear to be "overbought" by many measures. This, in turn, easily causes technical indicators to trigger sell signals, like we see when the RSI moves from above to below 70 in the charts I've posted. View larger image In 2006, internal indicators showed a larger number of stocks moving to sell signals than at any time since the 2002-2003 bear market bottom. This was a sign to ignore the first sell signal. Because the speculators had been "washed out," we then saw the biggest uninterrupted market advance in approximately 50 years. View larger image Of course, after seeing the worst economy since the Great Depression, markets were washed out on a historically grand scale. After a short pause and many technical sell signals, prices moved much higher. Notice that after the strongest sell-off, this time there were two sell signals that were best to ignore. Then we had the 2010 mid-year market sell-off. The S&P 500 moved about 150 points higher and, after a short pause and RSI sell signal, it moved another 150 points higher. View larger image In a ferocious market panic, after the U.S. credit rating was downgraded, markets had been washed out again. The first sell signal was triggered when the S&P 500 was at a price level that would only be visited for two weeks later in the year, never to be seen again. View larger image Finally, we have the October 2014 sell-off. While not seen in most major averages, severe damage was done, unless you managed to hold on. If you did, then you're sitting in a stock market in good company. Investors like you remain while the weak have been shaken out. The first RSI sell signal was triggered yesterday. Sell signals from other indicators will show up, but I say ignore them. Because you'll never be able to hit that home run if you strike out early in the count. Good investing, Chris Click here to post a comment on InvestmentU.com "It's Like Winning the Lottery!" - Lawrence L. According to an ABC News report, people are becoming "millionaires overnight." It's happening in Kansas, Pennsylvania, Texas, Oklahoma... All over the country. One man from a tiny town of 1,458 is now looking "to reap as much as $1 million per year." How are they doing it? Shockingly, it all comes down to an amazing 94-year-old man's invention. Go here to find out how his invention could hand you as much as $127,000 each year for 45 years. Reader Favorites From Investment U The Right Choices by Marc Lichtenfeld Monday, December 1, 2014 The choices we make directly lead to our financial well-being and, more importantly, our happiness. If you had an extra million dollars in the bank, would you do anything differently? Read On... Investment U Plus by Bob Keaveney Tuesday, December 2, 2014 It beat the market before the 2008 crash. It beat the market during the crash. And it has beaten the market since. In markets good, bad and scary, this is the stock you want to own. Readers of Investment U's premium edition are learning about it today. Find out how to join them by clicking here. Cable Networks Look to Cyberspace for New Profits by Tom Sandford Friday, November 28, 2014 Considering cutting the cable cord tethering you to your TV set? You aren't alone. While about 100 million Americans still pay for traditional cable and satellite TV service, customers are leaving in droves, according to the Leichtman Research Group. Read On... You are receiving this email because you subscribed to Investment U. To unsubscribe from Investment U or to manage your account, click here To cancel by mail or for any other subscription issues, write us at: Investment U Attn: Member Services 105 West Monument Street Baltimore, MD 21201 Keep the emails you value from falling into your spam folder. Whitelist Investment U. Question? Comment? Need help? Contact us here. Website: www.investmentu.com | North America: 855 402 3939; International: +1 443 353 4057 © 2014 The Oxford Club, LLC All Rights Reserved The Oxford Club | 105 West Monument Street | Baltimore, MD 21201 North America: 1 866 237 0436; Fax: 1 410 329 1923 International: +1 443 353 4540; Fax: +1 410 329 1923 Privacy Policy | Whitelist The Oxford Club The Oxford Club is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that although our track record is highly rated by an independent analysis and has been legally reviewed, investment markets have inherent risks and our past performance does not assure the same future results. The stated returns may also include option trades. We expressly forbid our writers from having a financial interest in their own securities recommendations to readers. All of our employees and agents must wait 24 hours after online publication or 72 hours after the mailing of printed-only publications prior to following an initial recommendation. Any investments recommended by The Oxford Club should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of The Oxford Club 105 W. Monument Street, Baltimore MD 21201.