Stick To Your Guns!

My friends usually laugh at me when I tell them that my investments are 75% in cash right now.  However, that laughter ends abruptly when I tell them that at the end of February and early March, I moved my entire stock portfolio to cash because I was anticipating a big downturn for the stock market.  While no one has a crystal ball, my prescient decision was solely due to my training in technical analysis.  This is what I saw: 

1) When 2020 started, cycle analysis told me that the economic expansion and the bull market in stocks were both in extra innings when compared to the historical averages.  

2) The Nasdaq actually flashed a negative divergence with its RSI line in late Feb & around that time, the cover of the Economist magazine had a bullish article on big US tech stocks.  This type of cover story is usually a sign of excessive optimism and contrarian indicator.to 

https://www.dhirubhai.net/posts/thomas-dunn-cmt-61293b51_stockmarket-equities-allstarcharts-activity-6636775228884258816-ed97

3) The S&P began to see some big downward gaps.  These were breakaway gaps so I knew that more downward gaps were likely coming.  

4) The stock market had rallied about 70% since Trump took office in 2017 and I thought investors would be eager to lock in gains at any signs of stock market stress. In addition, the 4th year of a President's term in office tends to be mildly positive for the stock market, but not as good as the 3rd year of a President's term. Thus, it seemed like there was limited upside.

5) Throughout February, my Hong Kong friends were in a total panic about the virus and begged me to send them masks. I then realized that there was a big disconnect between their panic in HK and the total calm in the US. 

My point with this article isn’t too take a victory lap, but rather to emphasize the importance of sticking to your discipline even when others ridicule or laugh at you.