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Great Trough signals new advance
Below is an extract from an alert sent to our subscribers on morning of Tuesday 22nd March (12 days ago). Since then the JSE has risen almost uninterrupted by 5.4%
We are issuing a "Fosback Great Trough" alert. This system tracks an index made up from an exponential moving average of daily advance and decline data on the JSE and issues the alert when the index rises above 30 and then makes a peak. This is a very rare but deadly reliable signal for a new multi-month sustained advance on the market and has only been flagged 15 other times over the last 15 years (one signal per year average) as depicted below:
This is the 3rd such signal we have seen since this bull market commenced in October 2008. It only picks up “Great Troughs” i.e. large corrections from whence sustained multi-month (even multi-year) gains commence. Every signal since 14/09/1998 has been solid with two “false signals” in Oct 97 and June 98. This gives it a historical accuracy of 86.6% (two duds, 15 signals excluding todays) with the last 12 signals in a row being successes.
It is not a trading signal, since sometimes it can be a bit premature or late (by 1-2% either way), but for investors looking to “buy on the dips” it is perfect. You can buy instruments that track or approximate the JSE to play the signal, such as SATRIX40, SATRIX RESI etc. But since it marks potentially highly probable periods when a sustained rise is likely on the JSE it often signals investors to buy those favourite shares they have been hunting, on the premise that “a rising tide floats all boats”. Conducting your equities activities on or around these signals gives that extra margin of safety that your shares you buy have “tailwinds” as opposed to “headwinds”.
Now great troughs by definition are formed in reaction to some negative event, be it geopolitical, bubbles bursting, terrorist attacks, financial crises etc. There needs to be a certain degree of pessimism, negativity or uncertainty to prevail to bring about these large corrections. Since it so closely approximates “ground zero” of these corrections, it is to be expected that on the day you see these signals they appear counter-intuitive. Without the luxury of hindsight, the signal on the hard right edge of the above chart looks far less obviously correct than those on the left! As such it is a “contrarian” signal – meaning when you see it, every instinct will be screaming at you the signal is wrong. And right now is no exception! Major geopolitical upheavals in the middle east and North Africa, crippling twin natural disasters in the world’s 3rd largest economy, nuclear contamination threats, inflation clouds building worldwide, debt contagion in Europe – all conspire to tell us we must be bloody mad to deploy funds into the market at this time. The point is this is exactly what everyone else is thinking and history tells us when everyone is thinking the same way in the markets, you are better off doing the opposite! By the time something looks “obviously safe” the major move is over and the smart money is getting out already!
There are no guarantees this is not a false signal, but the odds are on our side. Provided you couple your actions on this signal with sound position sizing and risk management, and adequate diversification of well-chosen instruments (solid stocks shown to you by our JSW program) that are not overpriced then any potential downside should be limited, and certainly far smaller than the potential upside. As with many great troughs, bottoms can be choppy affairs before the wind finally fills our sails and ramps us forward, so do expect volatility to ensue. It might not occur and we zoom upwards, but you need to at least prepare yourself mentally for it to ensure when it arrives you don’t get cold feet and succumb to your “fight or flight” instincts.
Regardless of if you are a short term trader or investor, we suggest you commence firing up your JSW Program and start picking up quality stocks it is recommending.For demo videos of how this is done go to our Video Training Library.
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