Thank you. Very useful!

yes, im learning, thanks karl

Fantastic.

Thanks, very useful
Where does this leave non trading/out to cash members of this forum? At the moment returns are just about OK but they will decline if global interest rates fall in a full blown recession/depression coupled with a bear market. For example,do we go buying housing in the most collapsed housing market that we can find and rent it out?

If you're a long-term investor and are not interested in active trading (and there IS an argument for this approach - realize the TAX IMPLICATIONS between long term cap gains .vs. ordinary income!) you can simply go to cash for bears and be invested in equities in bulls.

This will positively shellec the averages over long periods of time.

If you cannot be on top of the markets in a bear, you should get the **** out. It is very, very hard to make money in a bear market unless you are trading it actively. In fact, most people who THINK they can do so successfully actually LOSE money!

Now they might lose LESS than if they stayed in (which isn't horrible if you think about it) but you lose zero in cash!

(This is all ex-inflation, of course - inflation waits for nobody.)

I would not go anywhere near housing yet. R/E is a horrible place to be right now and with the exception of a few very special circumstances you're way early. R/E is a ****ty investment unless you can catch it well below market value in ANY environment other than an inflating bubble like we had the last 3-4 years - any other time, over long periods of time, it sucks ass when carrying costs and all are counted.

(Yes, I know people think they're making a ****load in R/E. Absent those special circumstances when you buy, that's a total crock. Virtually all of them would totally destroy their R/E profits had they been in the market instead. The exceptions are during "bubble" times like we had recently. And no, using leverage and comparing against unleveraged returns in equities does not count.)

Thanks KD ! This is very useful - I will do more reading on this.

1 Question though - you quoted specific values (40, 60) you used in the analysis.

Do these values context sensitive ? (i.e. differ if you are talking about indicies for markets in other countries etc or other types of indicies).

excellent excellent video.

I used to trade crude futures about a year or so back but had to get the hell out when the israelis bombed lebanon, i was long heavy, then power goes out on my desk and i have no stops in place. Yes, I actually blew up and erased 6 months of excellent gains in a 1 hour timeframe! =) Always use stops people! Always! (as a sidenote, blowing up is extremely valuable, especially early on in my trading career, as it was an invaluable risk management lesson)

But these next few weeks are really tempting me to jump into the SPX futures given the risk reward, but i'll keep my powder dry and continue with the options.

Here's where we separate the men from the boys eh?

Question about your view on the dollar. You don't think that you can offset dollar losses with gold/silver futures in the event of a rate cut? You mentioned that. Recently, there have been some very, very large call options going off in the gold market for the December timeframe. The thinking is that this is smart money placing their bets without sending out volume-based smoke signals in the futures market. The last time this happened in gold was back in 2005 right before a major breakout in the gold price. Maybe these calls are signalling a rate cut ahead? Who knows.

If you think about it, this next week may actually be the most important week of the year.

Clean your weapons and count your blessings!

I think that the housing bubble in the UK over the past 6 years was in part fuelled by the dotcom bubble crash when almost everyone lost faith in shares. My guess is that if the share market tanks again then it is probable that the UK housing bubble could continue defying gravity as long as there is cash to fuel it.

If, as is likely the cash is heavily restricted then the bubble might pop but it will, I think , reinflate pretty quickly once the cash comes back. From what you are saying that this will not be the case in the US

Again, thanks for this blog... a point of relative sanity in an insane world.

Excellent stuff Karl. You should put a sticky on TA tutorials such as this in the TA section!

I found I had to tweak the default RSI period setting in my charting software (Quotetracker) from 14 to 28 to get 40/60 to work. I'm curious what settings you use for both weekly RSI and MACD.

Genesis (or OptionsWolf):

This presentation is very useful. It begs the question: What are the indicators for short term trading that can help frame tactics in a bear market?

A very good video. I've always felt that the bull markets are much easier than the bears. I'd prefer always just to go long and suffer the consequences if I don't have the brains to bail out soon enough from bear markets, but these days with this size of a RE bubble, I'll try the short side and see if my luck runs out or not.

Great video and tutorial. I'm new w/ TA and didn't realize how effectively this could be used as a long term indicator. I've been using the rsi/dmi/macd to do some short term trading but I wasn't sure how to confirm a bull/bear market.

One question.. can closing under the 200dma be a signal of a bear market as well, or is it possible to be just a "correction"? I've been thinking that's a good way to tell (if many indices are under the 200dma) but that was just a rough guess looking back at older charts..

karl, my own thesis being that gold is money, actually the only money, and not a commodity i pulled up a 5 year weekly on gold to check it against your parameters. once a year for a month or two, '07 so far excluded, the rsi has dipped to ~50 and the macd gone to ~ the zero line - but no crossovers. looks to me like a strong bull mkt. by your lights. i will freely admit that gold may go into a swan dive here, is this a triple, even quadruple, top as we breach 700? i see no reason to celebrate here, very tricky territory, but i do think the path is up and up. if this belongs in commodities shove it along, but i thot it a nice adjunct to you fine video. don e.

great VDO... finally I have been able to view a few of your videos... my IT guy said that they were blocked, and for the most part I cannot view, but sometimes it just works, which I cannot explain, but it's nice...

Youtube may have several ip addresses, only some of which are blocked. Sometimes you get one that is blocked. Sometimes you don't.

If you are using Windows, and you get blocked, close all instances of your browser, open a "cmd" window and type "ipconfig /flushdns", reload the browser and try again.

I took a 20 year graph and put text notes marking where the bull and bear markets should be (left of arrows mark the spots on the timeline) according to the 9/8/07 ticker "On Bulls and Bears". These indicators were useful for past bull markets, but in all but one bear market you would lose money if you shorted at the bear indicator and covered your shorts at the bull indicator. The bear markets were of such short duration that by the time the indicator showed it, it was often almost over.

You're misusing the indicators, especially the RSI.

The MACD histogram will tell you when you can enter a short position, but it (standing alone) is not good enough.

The purpose of the RSI and MACD line/signal pair indicators is NOT to tell you when to put a short on. It is to confirm that what you are currently in is not a "correction", but something more serious or, alternatively, that what you are in is a "bull", and have exited a bear.

The entire purpose of this video was to give long term investors tools they might find helpful.

You are attempting to abuse the indicators if you are intending to use them as ENTRY POINTS.

They are CONFIRMATORY indicators, not LEADING indicators.