NO FEAR: This market is full of opportunity.

Fear levels are starting to creep back into the market, and investors are concerned about their long-only positions.  In a market that has moved sideways for over a decade this is no surprise.  Investors who refuse to be pro-active will have found their market based investments in an equally sideways pattern over this same duration, without making any positive headway.  I have explained the reasons for this economic environment already through The Investment Rate, but the purpose of this article is not to explain what is happening but instead to offer an alternative.

The alternative that I propose is one that has also had exceptional recent performance.  Since March 1, 2012 this strategy is up over 15% while the S&P 500 as of its close last Friday was flat over the same duration.  The reason this is possible is that the strategy I will describe here is proactive, it is not dependent on market direction, it does not depend on economic conditions, the elections overseas, if Obama gets a second term, or the day to day headlines that might drive the emotions and decisions of other investors.  In fact, this strategy actually removes the emotional burden that the market otherwise imposes, and that may be the most important quality of them all. 

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By removing the emotional burden, by relinquishing the dependency on market direction, suddenly what could rightfully turn out to be a very ugly stock market environment might not influence us instead.  We can continue to be productive at work, present with family, and we can achieve excellent performance in the face of an otherwise weak economic and stock market environment.

Truthfully, the market does not need to fall although I believe it will fall aggressively.  The beauty of the strategy is that my longer-term outlook does not need to be right or wrong.  In fact, this strategy removes the dependency on opinion as well, and that too helps remove the emotional condition.

The strategy is Trend Tracker with our day alerts viewer. Trend Tracker is an automated, correlated, market timing and stock selection tool that integrates directly to brokerage accounts at Options Xpress a division of Charles Schwab (SCHW), Interactive Brokers (IBKR), and Ameritrade (AMTD).  The objective of this strategy is to trade the NASDAQ, and the NASDAQ only, using the double weighted long (QLD) and short (QID) ETFs only.  By focusing simply on one market and these ETFs the distractions that are otherwise imposed by individual stocks and the Golden Handcuffs that often keep us invested when we know we should be either in cash or short are removed.

Purposefully, this strategy keeps it simple and that is priceless in a market with so many moving parts.  Persons often fail to see the moving parts when the market moves up, but when fear starts to creep into the market like it has recently those moving parts become a burden.

The process is to use three different charts and straight-line technical analysis to define support and resistance levels for the NASDAQ, and then follow them.  First, define support and resistance levels based on a near-term chart, which is usually five days.  Then do the same for a midterm chart, which is usually 25 days.  Then, finally, do the same on a longer-term basis, which is a chart that spans six months or more.  If straight-line technical analysis is used two data points will be derived from each chart and those data points can be combined into an array from lowest to highest. From there, just input the level of the market and react to tests of support and resistance.

Using Trend Tracker, all we need to do is input that information into the tool and click activate, and from there it will do the rest.  Since March 1, 2012, this has a return over 15%, it has removed the emotional burden that is otherwise associated with the market, and in the environment that I foresee this is priceless.  Trend Tracker does not need to be used to accomplish this goal, the concept is as straightforward as buy at support - sell at resistance, short at resistance - cover at support, but Trend Tracker is automated, and that allows us to do this without sacrificing time or lifestyle too.