Some quick notes from the training session this morning:

Use the 5-day Moving Average on your daily charts for clear exit signals. Set your stops below the 5-day MA.

Use the 8/8 crossover on daily and intraday charts to do the same thing.

Use stop-loss orders; stopping out is your pay day. The 5-period Moving Average is valid for all time frames, but for more flexibility on intraday charts use the Donchian channel to avoid getting stopped out too quickly.

Use stop-losses instead of taking profits quickly. Ride the bull as long as you can, because he will try to buck you off. The market maker is doing that: he'll take the price back down to stop you out before he takes the price up.

In addition to intraday trades for short-term profits, be sure to trade the intermediate chart. This will prevent you from missing nice trending trades, even when you can't sit and watch the market intraday.

Keep in mind that our double-beta ETFs are leveraged plays, up and down. Leverage is great when it's going your way, but set your stops and get out when reversals come.

Your position size should never put you in a situation to lose more than 1% of your portfolio. Plan your trade size and stop-loss orders accordingly.

Use an intraday chart even if you can’t get real-time data--the 8/8 crossover will give you nice signals on getting back into a trend.

12th Straight Day

The NASDAQ rose for the 12th straight day today, gaining 47 points to close at 1973.60. The index is up an impressive 12.4% from its close of 1756.03 on July 10.

The Dow Jones Industrial Average rose 188 points in today's trading, retaking the 9000 level for the first time since January. The Dow closed today at 9069.29, a gain for the Big Board of almost 923 points since July 10, when it closed at 8146.52.  That's a gain of 11.3% in nine trading sessions.

The QLD closed today at $44.42, up 26.5% from July 10. The DDM is up 23.8%, closing at $32.92.  We recommend these double-beta ETFs for trading the market.

As Steve put it in this morning's commentary, "ride the bull for as long as possible by keeping stops underneath the rising 5 day moving average for short term trades, and an 8 or 10 day average for intermediate trend positions."

EBRI's Annual Retirement Confidence Survey

According to the Employee Benefit Research Institute (EBRI):

"Workers who say they are very confident about having enough money for a comfortable retirement this year hit the lowest level in 2009 (13 percent) since the Retirement Confidence Survey started asking the question in 1993, continuing a two-year decline. Retirees also posted a new low in confidence about having a financially secure retirement, with only 20 percent now saying they are very confident (down from 41 percent in 2007)."

EBRI also says less than half of those surveyed have any idea how much money they will need to retire comfortably:

"Many workers still do not have a good idea of how much they need to save for retirement.  Only 44 percent of workers report they and/or their spouse have tried to calculate how much money they will need to have saved by the time they retire—and an equal proportion (44 percent) simply guess at how much they will need for a comfortable retirement."

Unfortunately, an astounding 53% have less than $25,000 in savings and investment. Fully 76% of those responding to the survey reported having less than $100,000 put away for retirement.  So, regardless of how much they think they need, few respondents have much at all put aside for retirement.

There has never been a more urgent need for successful investing to rebuild the account values ravaged by last year's market decline.

Read the entire report at 

http://www.ebri.org/pdf/briefspdf/EBRI_IB_4-2009_RCS1.pdf

Trade the Trend

Very powerful training session this morning. One point that hit home is we must trade with the trend. Fighting the trend is like swimming upstream in a swift river.

The question all investors need to answer for themselves is this: Which trend do I want to follow? Short-, intermediate- or long-term trend?

Steve showed us how to use the 5-day moving average and the price channel as stops in the current intermediate trend, and how the 5-day gives us a great exit point during the initial phase of this intermediate advance. The price channel will give us more lattitude when the short-term cycle chop begins.

DDM and QLD Continue to Move Up, Are You? Paper Trade to Gain Confidence.

From this morning's commentary:

"We don't trade against the magenta line (intermediate), even when shorter term cycles look like they are due to decline. We use their weakness instead, to add to long positions...The reason is that big money keeps buying the dips...when I start pointing out how an intermediate cycle has been in a 4-5 week decline that typically only lasts 4-6 weeks, then you have to be ready knowing that some kind of alarm is going to be triggered inside the institutional brain, and they are going to wake up and push the buy button. It happens all the time, several times a year."

Shares of the DDM, our preferred Dow double-beta tracking stock, are up $5.31, or 20%, from their July 10 close. Shares of the QLD, the NASDAQ double-beta tracking stock we use, are up $6.75 (19.2%) during the same period.

Some of you are still on the sidelines during this nice market rally. We had a question from a student some time ago that merits repeating here. She came up after a live training session and asked, "How do I get over the fear of making a bad decision?"

"Through learning and practice," we replied. She was involved in learning already, so we went on to discuss paper trading, and how important it is to use paper trading tools available through your discount broker to practice everything you learn about investing BEFORE you commit any money to a new technique or strategy. Repetition anchors your understanding and leads to confidence.

We hope you are actively investing, and if not, that you are paper trading the insights Steve provides on the site each day. Once you have the confidence that you understand how to invest properly, then you can commit money to the market without fear. You'll never look back.

Already we've had very nice feedback from subscribers who are enrolled in Steve's current training series, which began yesterday. If you would like to take advantage of this opportunity, contact us through the website at TheMarketForecast.com. The first session yesterday is available in the archive for attendees to review.

Are You Conventional?

We recently discussed the flaws in using only history to make investing decisions. Stock market prediction is particularly difficult when investors compound the error using shaky assumptions. Writing in the weekend Wall Street Journal, Tom Lauricella discusses one typical mistake:

"Even though stocks are down about 40% from their peak, the conventional wisdom is that investors should have stuck to their long-term plan and not responded to the market downdraft. But a growing number of advisers think that's foolish...'Historically we know there are periods where you could lose a decade's worth of returns,' says David Lucca, a partner at Dallas-based Rhoads Lucca Capital Management. 'Why would you follow the conventional wisdom?'...

"'The wiser thing is to be prudent,' he says. 'To say I don't care what happens to my money today, maybe in ten years it will be better, doesn't make any sense.'"

Read the full article at

http://online.wsj.com/article/SB124795660287062371.html

What are We Seeing in the Markets?

Nice bullish move in the market today, up 3% on the Dow and 3.5% on the NASDAQ. If you're trading the ETFs, the DDM was up 6.25% and the QLD finished up just under 6.6% for the session.

Following this morning's commentary we were looking for the indices to "push through their still resistive 30 and 50 (on the Dow) moving averages...Once those averages are surpassed, significant automated buying kicks in, and a renewed intermediate up trend can grow some legs." After the Dow blasted through those moving averages to trade at about 8500 within 30 minutes after the opening bell, the market never looked back, closing at 8616.21.

But let's go back to last week. In the commentary for both Thursday and Friday Steve took a slightly bearish posture, stressing that the moving averages were providing stiff resistance. However, he indicated we would see the intermediate weakness ending when the market broke above the 5-day moving average. On Monday he also emphasized that continued weakness was "not a given, because the Dow's long-term cycle is still rising" and the intermediate cycle was deep in the reversal zone.

In Friday afternoon trading on our 30-minute chart of the Dow we had a nice bullish crossover with the market trading above 8120. It was a good time to be long in a short-term trade and the market advanced another 25 points through the closing bell. Much to our pleasure, that signal has not reversed, indicating we should be on the long side of the market through this 500-point move.

If you missed that signal, you had another good shot on Monday. On the daily chart of the Dow the market pushed through the 5-day moving average, which had been so unyielding, above 8200. That signal got you into a 400-point move.

If you missed that one, too, be patient. We don't chase profits. Short-term and momentum cycle dips are good re-entry points for getting into a rally that you missed the first time. And remember we can make money in both directions.

(While the NASDAQ and Dow have each been up approximately 5.7% during the time we are discussing, the QLD is up almost 11.4% and the DDM is up about 12%.)

Is this the start of a bullish intermediate cycle? Steve says,"[F]or now, what we are seeing could be considered a short term cycle rally with the POTENTIAL to turn into a full intermediate advance but we want volume to confirm as well."

So far, so good. Stay tuned.

The Problem Most Investors Face Using History to Predict the Stock Market

Good information is critically important to making decisions about your investing. The problem is, there is so much "noise" out there that it can be difficult to focus on the few things that will be the most helpful to you. So the default setting for most investors is to look at history.

The history of the market: what happened last year, the last 10 years. The history of the stock you're considering buying: the most recent quarterly earnings, last year's results, how much it's up (or down) in the past five years.

Unfortunately, that type of history will not make you a better investor. How many times have we been told that "past results do not guarantee future performance"?

This is why at The Market Forecast we ignore almost all news--it concerns itself with what has already happened. And it's not useful, because we can't change it or act on it. We want to know what's going to happen next. Read the news for entertainment, not stock market prediction.

Jason Zweig of The Wall Street Journal reveals one of the greatest pitfalls of relying on history: What if the accepted history is just plain wrong?

He writes that even though U.S. stocks as a whole have underperformed the long bond for the past 5, 10, 15, 20 and 25 years,

"Still, brokers and financial planners keep reminding us, there's almost never been a 30-year period since 1802 when stocks have underperformed bonds.

"These true believers rely on the gospel of 'Stocks for the Long Run', the book by finance professor Jeremy Siegel of the Wharton School at the University of Pennsylvania that was first published in 1994.

"Using data assembled by other scholars, Prof. Siegel extended the history of U.S. stock returns all the way back to 1802. He came to two conclusions that became articles of faith to millions of investors: Ever since Thomas Jefferson was in the White House, stocks have generated a 'remarkably constant' average return of nearly 7% a year after inflation. (Adding inflation at 3% yields the commonly cited 10% annual stock return.) And, declared Prof. Siegel, 'the risks of holding stocks decrease over time'."

"There is just one problem with tracing stock performance all the way back to 1802: It isn't really valid...The 1802-to-1870 stock indexes are rotten with methodological flaws.

"Another emperor of the late bull market, it seems, has turned out to have no clothes."

Read the entire article at

http://finance.yahoo.com/news/Does-StockMarket-Data-Really-wallstreet-2749436021.html?x=0&.v=4

So, which history do we use?

Cycle analysis is the only tool we have found to be accurate in predicting the markets. Then we confirm with a handful of useful technical indicators, including the 5-, 30- and 50-day moving averages, along with volume. And we employ our crossovers for intraday and short-term trades.

That's it. Everything else is just noise, or entertainment.

Only 25%?

Earlier we wrote that only 25% of stocks outperformed the market.  William J. Bernstein writing in Money Magazine provides further information:

"In fact, researchers at the investment management firm Dimensional Fund Advisors found that from 1980 to 2008, the top-performing 25% of stocks were responsible for all the gains in the broad market, as represented by the University of Chicago's CRSP total equity market database (see the chart).

"As for the bottom 75% of stocks in the U.S. market, they collectively generated annual losses of around 2% over the past 29 years."

Read the entire article here:

http://money.cnn.com/2009/05/09/magazines/moneymag/stock-strategies.moneymag/index.htm

A Quick Summary of the Year to Date

From Steve's Commentary for July 6 at The Market Forecast:

"[W]e had two incredibly sloped intermediate moves during our first six months of trading this year. If you followed only the intermediate cycle and just played it twice, using the DXD in the January-February decline, you gained about 46%. Since the March 6th lows, the DDM rose to a high with gains of 70%. That's a whopping 116% so far this year. If you add to that the ability to trade many of the shorter term swings in between those moves, the returns go much higher.

"But don't worry if all the news kept you out too long, or you struggled with taking profits too early, or you are just learning how to play both sides of the market. The important thing for everyone here, is that you didn't get slaughtered by the bear side of the markets as did just about everyone else. You've managed to be profitable during an historic time when most investors were left holding the bag at the top, and who are still down some 40% from where they were in October 2007 (even after the recent recovery rally).

"Best of all, there is plenty of big swing action remaining and our cycle work should keep us on the right side so we can do it all again!"

Exactly what is Steve talking about?  

First, our cycle charts tell us what is coming next. They are great for predicting the market.

Second, we use simple technical indicators to confirm market moves. We'll include a 5, 30 and 50 day moving average to define key support and resistance levels. Throw in Steve's favorite short-term crossover, along with a couple of tools he has refined, for intraday trading confirmations.

And third, we use Exchange Traded Funds (ETFs) to take advantage of moves up and down. Why ETFs? To keep it simple.  

Many investors are spending valuable time trying to identify good stocks that will outperform the market. It's time-consuming work.  

The fact is, research shows that only 25% of stocks beat the market on average. Even fewer are real "home runs". And a full 75% of stocks fail to keep up with the market. We don't like those odds.

Think about those facts. If a rising market lifts good stocks and the poor ones fail to keep pace, why waste time looking for the home run stocks? Simply trade the market that lifts those stocks!  

If you want to outperform a bullish move, trade the "double-beta" ETF tied to that index. Double-beta shares are designed to move up twice as fast as the underlying index. Is the market turning, heading down? Trade the double-beta ETF intended to move up twice as fast as its underlying index is falling.

We'd rather identify market direction, correctly forecast reversals and re-entry points for profitable trades, and then trade the entire index with the corresponding ETF.

We recommend the DDM, QLD, SSO, FAS for bullish markets moving up. The first three are double-beta shares tied to the Dow, the NASDAQ, and the S&P 500, respectively. As for the FAS, that one is a triple-beta ETF intended to move up three times as fast as the Russell 1000 Financial Index.

We recommend the DXD, QID, SDS, FAZ for bearish markets moving down.  Like their counterparts above, the first three are double-beta shares tied to the Dow, the NASDAQ, and the S&P 500, respectively. The key difference is that they are designed to move up when the underlying index moves down. The FAZ is a triple-beta ETF intended to move up three times as fast as the Russell 1000 Financial Index is moving down.

Caution:  These ETFs are not "buy-and-hold" ETFs.  They are intended for trading.  Learn to do it right and you should see great results.

Remember to paper trade any new strategy or tools to become familiar with them and ensure you are trading profitably.

Markets Bounce Back in Q2

The market has posted its best quarter since the fourth quarter of 2003.  The Dow Jones Industrial Average gained 838.08 points during the last three months to its June 30 closing of 8447, up 11% from April 1.  And while the market is still down 3.8% year-to-date, it has advanced 29% from the 12-year low hit on March 9. 

But that's only part of the story for the second quarter of 2009.  Trading the DDM, ProShares' double-beta Dow tracking stock, and using The Market Forecast, we are up 58% since our cluster low in early March.

The S&P 500 was up 15% during the second quarter.  The NASDAQ was up more than 19%.    

So what's the performance of the SSO, ProShares' double-beta S&P 500 tracking stock?  Up about 76% from the cluster low on The Market Forecast Chart.  

And the QLD, ProShares' double-beta NASDAQ tracking stock, was up over 85% since our cluster low in early March. It's been an exciting time to be in the market.

Just as important, markets don't have to move up--we can take profits in downturns.  We look for continued opportunities to profit in the months ahead.