When February started, the S&P looked like this:
Now May is starting and the S&P looks like this:
It’s like we’ve simply zoomed in on the exact same chart but that “zoom” means we’ve cut 1.67% off the range and now the S&P is stuck in a 3% range, between roughly 2,600 and 2,700 and, if we zoom out a bit more, we see that tightening range is wedged right between the 200-day moving average at 2,611 and the 50-day moving average at 2,688 and the narrower this range gets, the more those averages squeeze together leading to a very exciting resolution at some point.
Remember, the 5% Rule™ is not TA, it’s just math but we illustrate the math on charts – that’s all they are good for, really. Charts tell you where you’ve been, not where you’re going and, if you want to stay ahead of the market, you should use the 5% Rule™ – because it tells you which way the markets are heading. In January the 5% Rule™ told us the markets were wrong and the rally was overdone. That’s why our Short-Term Portfolio is up 85% for the year – because we made the right bet at the right time.
Knowing the bottom of our range lets us know when to buy while other are panicking that there is no bottom and knowing the top of our range lets us know when it’s time to cover or sell to the suckers who think rallies will last forever. What the 5% Rule does, in essense is simply to reinforce Warren Buffet’s adage to “Be fearful when others are greedy and be greedy when others are fearful.”
This is not a complicated concept – almost any value investor knows it but there are very few of us value investors left in the World and most of the trading world acts more like the audience in a Bugs Bunny cartoon – stampeding in and out of the positions (5:00) whenever somebody throws a switch. At Philstockworld, we teach our Members to