Long-Term Investing Is Dead; Check the S&P Chart
If you didn't already guess it, then you know that long-term investing is dead. It's so dead that it actually stinks. The idea should be consigned to the dustbin of history and replaced with more of an up-to-date thinking. It's part of the core belief that influences the way we look at market outlooks over the next six months.
You want proof? Take a look at the S&P 500 monthly chart. We are routinely told by investment advisors that we should invest for the long term. Well let's put them to task at a 15-year time frame.
(Read More: Second-Half Stock Surge or Swoon?)
Forget individual stock picking because that's a waste of time. Evidence? Where are Enron, WorldCom, and other giants of the blue ribbon investment world? Delisted and busted. The reality is you cannot tell who will or who will not survive so we can only use the index for this exercise.
The investors who entered at point 1 in 1998 have made a 31 percent return over 15 years. That's about 2 percent per year!!! The investor who entered at point 2 has made essentially a ZERO return over 13 years. During that time he has twice suffered a 48 percent draw down. The investors who entered at point 3 has in theory made a 93 percent return over 12 years but he has watched his capital go from a 93 percent return and then drop to below zero in 2009. This is still an average of 7.75 percent per year.
The message is clear. The money comes from trading the rally uptrends. It's also made trading short on the retreats. You do not have to buy exact tops and bottoms to make a better return. Returns on capital from investing do not come from buy and hold.
After years there may be an opportunity to profit from buy and hold with the S&P - but only if you can break a 15-year habit and sell to lock in a profit. The breakout above 1,550 is bullish because it's a move above a triple top pattern. We expect to see some pullbacks perhaps in the order of 20 percent. This develops a consolidation around the 1,550 resistance level. We expect to see the S&P close higher at the end of 2013. This is a bullish trend, but it contains the potential to retreat towards 1,400 before the next longer term trend rebound develops.
This 20 percent retreat is validated with the Nasdaq. (Don't even think about the buy and hold approach in this market. It's still well below the March 2000 peaks near 4,800. ) The Nasdaq is in a steady uptrend. It has reacted away from the first resistance level and this is expected. It can slip back to 3,100 and remain in the longer term uptrend. The upside targets are near 4,100. This is a better trending environment than the S&P.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.
If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.
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