December 01, 2011 at 09:33 AM EST
Discipline Usually Pays Off In Investing.
Thursday, December 1, 2011. 9.30 a.m. Most professional money managers will tell you it pays to set what will be your exit strategy when you take a position. Not having a pre-set exit strategy when things don’t go as expected right away (which is not all that unusual) leaves you subject to potentially reacting to [...]

Thursday, December 1, 2011. 9.30 a.m.

Most professional money managers will tell you it pays to set what will be your exit strategy when you take a position. Not having a pre-set exit strategy when things don’t go as expected right away (which is not all that unusual) leaves you subject to potentially reacting to emotions if the situation deteriorates to a high level of concern, or even fear.

The month of November was a classic example.

The exit strategy for our Seasonal Timing Strategy is mechanical. Once in for its favorable season it remains fully invested until the following spring. In the spring it has an earliest acceptable exit date, with the exit thereafter determined by the short-term MACD momentum reversal indicator. If MACD is on a sell signal when the earliest date arrives, STS exits immediately on that date. But if MACD is on a buy signal when the earliest exit date arrives, STS remains fully invested until short-term MACD rolls over into its next sell signal. It sometimes adds several months to the favorable season. Non-emotional, fixed entry and exit strategies.

But this year, due to our concerns about the eurozone debt crisis, we took the unusual step of adding a second temporary exit strategy just in case.

We recommended a protective stop be placed 8.5% beneath the entry price of our holding at the entry, to be raised as the price rose to keep it always 8.5% beneath the highest price reached (on a daily closing basis).

As it turned out the highest price reached on the holding was $122.04, so the stop was at $111.67 when the carnage in November began.

At last Friday’s market low, and in the midst of all the fear-filled headlines, the holding closed at $112.14, less than 1/2% from the stop. Some subscribers bailed out, convinced it could not hold, even though in the premium content of the blog and other communications we showed how the market was very oversold short-term and at a potential trendline of support where at least an oversold rally was highly likely.

And in three days this week the holding has gained back 7.2% and is well above the stop again.

By the way as of yesterday’s close our Seasonal Timing Strategy is up 13.8% for the year so far, compared to the benchmark S&P 500 being down 0.4% year-to-date.

Our exit strategy in our Market-Timing Strategy is based on technical analysis and technical indicators and their intermediate-term buy and sell signals on the market.

It triggered a sell signal May 8, and a buy signal October 27. The carnage in November was doing a job on it. We cut back exposure in November when our intermediate-term indicators weakened, but they remained on the buy signal.

So at the end of last week, we told subscribers “The additional spike-down of the last week or so has many markets, including the U.S., very oversold short-term, to a degree where at least an oversold rally similar to those that repeatedly took place off oversold conditions during the summer, would be normal even in a troubled market. And our intermediate-term technical indicators remain on the October buy signal. But next week will be important.”

And so it was. As was the discipline of sticking with the previously established exit strategy. Last week the market may have been headed for the worst November in years, after experiencing the best October in years.

But with the rally of the last three days of the month, November didn’t turn out so bad after all.

The S&P 500 closed at 1,249 on October 31, and just 3 points lower yesterday, November 30, down just 0.2% for the month.

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Update on Our Forecast for the Year.

Last December our forecast for this year was for a minor correction in February/March, followed by a resumption of favorable season strength to a new high, and then a serious correction of 18% or so for the S&P 500 in the market’s unfavorable season, to a low in the October/November time-frame. And then a big rally to put the market in positive territory for the year.

That all seemed to be working out as expected, with the low coming on October 3. But the sudden reversal to the downside in November did unnerve us regarding the final stage of the forecast.

We’ll be making our forecast for next year in the next few weeks, probably in the next issue of our newsletter.

And we will be providing a study of markets in election years.

To read my weekend newspaper column ‘Here’s Something Investors Can Be Thankful For!’ click here!

Subscribers to Street Smart Report: The new issue of the newsletter and the regular Wednesday evening hotline are in the subscriber area of the Street Smart Report website for you from last evening.

Yesterday in the U.S. Market.

The biggest one-day gain since March, 2009 when the beginning of the new bull market began so explosively. And it was on big volume of 1.7 billion shares traded on the NYSE, almost double recent volume levels.

The Dow closed up 490 points, or 4.2%. The S&P 500 closed up 4.1%. The NYSE Composite closed up 4.7%. The Nasdaq closed up 4.2%. The Nasdaq 100 closed up 3.8%. The Russell 2000 closed up 5.9%. The DJ Transportation Avg. closed up 4.8%. The DJ Utilities Avg closed up 2.7%.

Gold closed up $25 an ounce at $1,750.

Oil closed up $1.14 a barrel at $100.38.

The U.S. dollar etf UUP closed down 0.9%.

The U.S. Treasury bond etf TLT closed down 1.5%.

Yesterday in European Markets.

Markets in Europe also closed sharply higher yesterday. London closed up 3.2%. The German DAX closed up a huge 5.0%. France closed up 4.2%.

Asian Markets Closed Up Sharply Last Night.

The Asia Dow closed up 3.9% last night.

Among individual markets last night:

Australia closed up 2.5%. China closed up 2.3%. Hong Kong closed up 5.6%. India closed up 2.2%. Indonesia closed up 1.8%. Japan closed up 1.9%. Malaysia closed up 0.7%. New Zealand closed up 0.2%. South Korea closed up 3.7%. Singapore closed up 2.2%. Taiwan closed up 4.0%. Thailand closed up 2.4%.

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Markets This Morning.

European markets are mixed and flat, digesting their big gains of the last three days. The London FTSE is up 0.53%. Germany’s DAX is down 0.2%. France’s CAC is up 0.1%.

Oil is up $0.08 a barrel at $100.44.

Gold is up $2 an ounce at $1,752 an ounce, and up a big $72 an ounce for the week.

This morning in the U.S. Market:

This is a very big week for potential market-moving economic reports, including New Home Sales, the Home Prices Index, the ISM Mfg Index, ADP Jobs Report, and on Friday The Big One!, the Labor Department’s employment report for November. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.

Monday’s report was that New Home Sales rose 1.3% in October over September, but only because September sales were revised down. However, year over year new-home sales in October were 8.9% above their October, 2010 level.

Tuesday’s reports were that the Case-Shiller Home Price Index showed U.S. home prices declined 0.6% in September. And Consumer Confidence at 10 p.m.

Yesterday’s reports were the ADP jobs report, which showed a surprising 206,000 new jobs were created in November, and the October number was revised up from 110,000 to 130,000. The Chicago PMI Index rose to 62.6 in November from 58.4 in October, and is at its highest kevel in 7 months. Third quarter Productivity was revised down to 2.3% from the initial reading of 3.1%. Pending Home Sales surged up 10.4% in October. And the Fed’s Beige Book assessment of the economy improved some, saying the economy expanded at a moderate pace in 11 of the 12 Fed districts since the previous report. .

This morning’s report so far was that new weekly unemployment claims rose by 6,000 last week to 402,000. Still to come are the national ISM Mfg Index. and Construction Spending, both of which will be released at 10 a.m. And Auto Sales, which will be released through the day.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 25 points or so in the early going.

To read my weekend newspaper column ‘Here’s Something Investors Can Be Thankful For!’ click here!

Subscribers to Street Smart Report: The new issue of the newsletter and the regular Wednesday evening hotline are in the subscriber area of the Street Smart Report website for you from last evening.

How are you doing? We can help, and at very reasonable cost! Street Smart Report Online provides an 8-page newsletter every 3 weeks, an in-depth 6 page interim update every Wednesday on our intermediate-term signals and recommended holdings, an in-depth 4-page ‘Gold, Bonds, Dollar’ update every 2 weeks, and special reports and hotline updates as needed. Sectors, stocks, bonds, gold, short-sales, long-side and inverse etf’s and mutual funds. Highly regarded and in its 23nd year. As a bonus for a one-year subscription you will also receive my latest book Beat the Market the Easy Way- Proven Seasonal Strategies That Double the Market’s Performance. Click here for subscription information.

I’ll be back Thursday morning with the regular Thursday morning post, at 9:25 a.m. (This blog appears every Tuesday, Thursday, and Saturday morning!).

**** End of Today’s post*****

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