1.10. TIMING THE MARKET: WHEN TO BE IN, WHEN TO BE OUT

From the O'Neil/Livermore perspective, waiting for the "pivotal point," or the exact right time to enter the markets means only being in the market when it is ripe for making money. Wait for the trend to develop and then jump on. A line with which we are all familiar came from something Jesse Livermore wrote in How to Trade in Stocks, "Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend" (Greenville: Traders Press, 1991, 69).

O'Neil and Livermore both maintain that there is a time to be in the market and a time to be out of the market, even though common investment wisdom dictates that one cannot time the market and therefore should always be fully invested in the market so as not to miss a bull phase and fail to keep up with the market indexes. O'Neil vigorously disagrees with such mindless orthodoxy when he writes, "Don't ever let anyone tell you that you can't time the market. This is a giant myth passed on mainly by Wall Street, the media, and those who have never been able to do it, so they think it's impossible." According to O'Neil, "The erroneous belief that you can't time the market—that it's simply impossible, that no one can do it—evolved more than 40 years ago after a few mutual fund managers tried it unsuccessfully. They relied on personal judgments and feelings to determine when the market finally hit bottom and turned up for real. At the bottom, the news is all negative. So these managers, being human, hesitated to act" (How to Make Money in Stocks, 4th ed. [New York: McGraw-Hill, 2009], 200).

Indeed, opinions have no place when it comes to stock selection or market timing, and we have sought to implement objectivity to our methods. The "Dr. K Market Direction Model," which is discussed in detail in Chapter 7, is a statistical formalization of the price/volume action of the NASDAQ Composite and S&P 500 Indexes. The timing model, from its earlier forms to its most evolved form of today, has guided our trading with success since 1991. It was inspired by the "M" in O'Neil's "CAN SLIM" investment system. More about Dr. K's Market Direction Model and the current market timing signal can be found at the following web site: www.virtueofselfishinvesting.com, and Gil Morales's work with respect to market trend timing can be found at www.gilmoreport.com.