All About
MARKET
TIMING
THE EASY WAY TO GET STARTED
OTHER TITLES IN THE
“ALL ABOUT” FINANCE SERIES
All About Technical Analysis
by Constance Brown
All About Stock Market Strategies
by David A. Brown and Kassandra Bentley
All About Six Sigma
by Warren Brussee
All About Derivatives, 2nd ed.
by Michael Durbin
All About High-Frequency Trading
by Michael Durbin
All About Bonds, Bond Mutual Funds, and Bond ETFs, 3rd ed.
by Esmé Faerber
All About Investing
by Esmé Faerber
All About Stocks, 3rd ed.
by Esmé Faerber
All About Asset Allocation, 2nd ed.
by Richard A. Ferri
All About Index Funds, 2nd ed.
by Richard A. Ferri
All About Hedge Funds
by Robert A. Jaeger
All About Forex Trading
by John Jagerson and S. Wade Hanson

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PART 2: MARKET TIMING STRATEGIES AND RESOURCES
Chapter 7
Calendar-Based Investing: The Best Six Months Strategy 119
vii
Chapter 8
Combining Presidential Cycle Years with Seasonality 141
Chapter 9
Using Simple Moving Averages to Time the Market 157
Chapter 10
The Value Line 4 Percent Strategy versus
the Value Line 3 Percent Strategy 185
Chapter 11
Nasdaq Composite 6 Percent Strategy 213
Chapter 12
Market Timing Resources: Newsletters, Web Sites, and Advisors 225
Epilogue 245
Appendix: The Capitalism Distribution 249
Bibliography and Web Sites 257
Index 263
viii Contents
FOREWORD
Market timing may be the most challenging approach to suc-
cessful long-term investing. It can be tough and ugly. I know this
well because I’ve been a market-timer in the trenches since 1983
both as an investor and as an advisor.
Timing requires thick skin and iron resolve. Because it is gen-
erally misunderstood, market timing is almost universally scorned
on Wall Street.
Yet market timing can be an important tool for risk-averse
investors. When it is used consistently over long periods of time,

ing work for them. He has taken a complex topic and made it acces-
si ble for real people.
The biggest problem facing most investors is that they need
the potential growth they can get from owning equities—yet equi-
ties are too volatile for most investors, as millions of buy-and-hold-
ers discovered in 2008 and early 2009.
As far as I know, there are only two solutions that make sense.
One is to buy and hold a portfolio with an ample allocation of
fixed-income funds. This brings stability, but at the same time, it
reduces long-term returns. The second solution, the topic of this
book, is to employ a disciplined market timing approach—which,
by the way, can include fixed-income assets as well as equities.
As this book shows, mechanical market timing makes it pos -
sible for investors to achieve the returns they need at lower volatil -
ity. Investors who do this are much more likely to stay the course.
For various reasons that are detailed in this book, timing is not
the best approach for every investor. Many people will be more
successful with a buy-and-hold approach. However, most of my
own investments are governed by market timing, and this suits me
well. I have worked hard all my life to accumulate assets, and I’m
most comfortable having an active defense against bear markets.
This book is for investors who share my conservative
approach, who believe, as I do, that hanging onto their money is as
important as making it grow. In this excellent guide, such investors
will find everything they need to determine whether or not market
timing is for them—and whether or not they have what it takes to
be successful.
Paul Merriman
Founder, Merriman, Inc.,
Seattle, Washington, and author of

Sy Harding, editor of www.streetsmartreport.com and
president of Asset Management Research Corp., shared
extensive information on his seasonal timing strategy
using the MACD indicator.
■
Paul Merriman, president of Merriman, Inc., wrote the
Foreword and his firm provided market timing insights,
research, and commentary.
xi
I also want to thank the following organizations and individ -
uals for their assistance, expertise, and information provided:
■
Active Trader magazine and Mark Etzkorn, editor-in-chief
■
DecisionPoint.com and Carl Swenlin, founder and publisher
■
Eric Crittenden, research director, and Cole Wilcox,
managing director at Blackstar Funds, LLC
■
Hays Advisory Group, LLC, and Don R. Hays, president,
and Mark Dodson
■
The Hirsch Organization and Stock Traders Almanac, along
with Jeffrey A. Hirsch, president, and Judd Brown, vice
president
■
Matt Hougan, president, ETF Analytics, global head of
Editorial, Index Universe
■
Investor’s Intelligence and Michael L. Burke, editor, and

Group, Inc.) and Michael Burke, product manager
xii Acknowledgments
All About
MARKET
TIMING
THE EASY WAY TO GET STARTED
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INTRODUCTION
1
If you don’t know who you are, the stock market is an expensive place
to find out.
—George Goodman
Did your investments get crushed in the last two stock market
crashes in 2000–2002 but also the more recent one from October
2007 to early March 2009? If you are a buy-and-hold investor, you
probably did get hit hard. I had no idea that we would witness a
worse crash than the 2000–2002 crash just six years later. This is
why the topic of market timing should be more in favor than ever.
Sadly, this is not the case and probably will never be the case
because of the Wall Street aversion to the topic. Moreover, the end-
less barrage of buy-and-hold banter continues unabated.
Surprisingly, the Wall Street Journal had a November 13, 2010, arti-
cle entitled, “How to Play Market Rally,” written by Ben Levisohn
and Jane J. Kim, whose first sentence was, “Forget ‘buy and hold.’
It is time to time the stock market.” So maybe now financial jour-
nalists and perhaps financial advisors and others have realized that
they need to promote a smarter way to invest instead of pushing
the buy-and-hold mantra, which has failed investors big time.
Such well-known and well-respected individuals as John C.
Bogle, founder and retired CEO of The Vanguard Group and

years. Just because you may not be retiring soon does not mean that
you can afford to ignore what is going on in the stock market.
If you have been investing since 2003, you were probably
ecstatic with your returns through the third quarter of 2007.
However, the market plunged for the next 15 months, and it
dropped at a much faster pace than it rose. Did you sell at or near
the top in October 2007 and put the proceeds into cash? You prob-
ably did not. Did you sell after your stocks, mutual funds, or
exchange-traded funds (ETFs) fell 10 percent, then 20 percent, then
30 percent, and perhaps 50 percent in some cases? Probably not,
2 Introduction
because you thought the market would come back, as it always
has. Well, this time the market did came roaring back with a huge
rally from the bottom through 2010, but it was still about 20 percent
off the October 2007 high.
Most likely, you follow the widely touted buy-and-hold
approach. And if you are like most investors, you have no game
plan for cutting your losses or taking your profits. Lacking an
investing strategy and blindly following the buy-and-hold
approach can lead to financial ruin. It can wipe out years of invest -
ment profits in a short time, and it can take years for your portfo -
lio to recover, if ever. Don’t fall for the buy-and-hold ruse, even
though 99.9 percent of financial professionals tout it as the only
way to invest for the long term. This is the same crowd that tells
you that dollar-cost averaging is a sound invest ment approach.
This approach advocates investing equal amounts periodically, for
example, monthly, no matter what the stock market is doing. The
supposed logic is that you will buy some shares at market lows,
thereby reducing your average cost of the investment and thus pro-
ducing better overall returns.

I do not recommend that the average investor buy individual stocks,
ever! Stocks are simply too risky for the average investor. With the
continued accounting scandals, Securities and Exchange
Commission (SEC) investigations, crooked corporate officers, and
managed earnings, why should you take a chance on picking the
wrong stock or the right stock at the wrong time and taking a big
hit? It is much more prudent and far less risky to invest in appro-
priate index funds or ETFs to spread your risk within a larger bas-
ket of securities.
To give you a unique insight into the actual performance of
individual stocks during a big bull market, consider the research
performed by Eric Crittenden and Cole Wilcox of Blackstar Funds
(refer to the Appendix on page 249 to see their full research paper).
In a nutshell, they analyzed the price performance of all common
stocks trading on the New York Stock Exchange (NYSE), the
American Stock Exchange (AMEX), and the Nasdaq (National
Association of Securities Dealers Automated Quotations System)
from 1983 to 2006. There were approximately 8,000 securities in the
sample. Here are their key findings for the lifetime return of stocks
for the 23-year period:
■
39.4 percent of stocks had losses, and 60.6 percent had
positive returns.
■
18.5 percent lost a minimum of three-quarters of their
value, and about the same number gained an average of
300 percent or more.
■
64 percent of the stocks underperformed the Russell 3000
Index, and 36 percent had higher returns.

stock market tops and bottoms. This situa tion always will be with us
because the emotions of dealing with investing—fear and greed—will
never change. Therefore, we can invest opposite the crowd’s actions.
Market timing is not a perfect investing approach; there is no
such thing, just as there is no Holy Grail. Market timing cannot pre-
dict in advance when the market will change direction, but if you
use a reliable, time-tested market timing system and follow all its
signals, you will exit the market after it begins to turn down and
you will reenter the market after it begins to turn up, all in time to
Introduction 5
make nice gains. Market timing will never pick the exact bottom or
top of the market, but it will, nevertheless, provide useful signals
after the trend has changed direction. Market timing signals are
usually correct only 40 to 50 percent of the time, but that is good
enough to make you money because small losses are more than
made up for by the big gains. Anyone who claims 80 percent or
more profitable trades should be checked out carefully because this
is a very difficult feat to accomplish, especially with a timing
approach that has many signals during a year.
My objective in writing All About Market Timing was fourfold.
First, I wanted to provide the rationale and facts behind my assertion
that market timing is a superior investment strategy to the ever-pop-
ular buy-and-hold strategy. Second, I wanted to provide a handful of
easy-to-understand, easy-to-implement, and profitable market tim-
ing strategies. Third, I wanted to help you to avoid the brunt of
future bear markets and protect your principal. And last, I wanted to
provide additional insight into how difficult it is to make consistent
profits in the stock market unless you have a specific time-tested
approach that you engage in with discipline and patience.
BEAR MARKETS ARE RECURRING—YOU

markets. Therefore, the key to investing is to pre serve your capital.
This means that you should take prudent actions to avoid bear
markets and not be invested in the stock market when they occur.
If you do not exit the market, then your profits (if there are any)
and even your principal will quickly shrink. How much can you
lose in the next bear market? The crash of 1929 wiped out 86 per-
cent of the value of investors’ portfolios, and the investors required
25.2 years to break even (not counting dividend reinvestment).
The experts tell you that no one can time the markets with
consistency. Guess what? The experts are wrong again, as you shall
see when you read about newsletters and timing services that beat
the market over decades in Chapter 12. This book also provides
you with the strategies that work so that you don’t have to guess
or make an invest ing decision based on emotion or someone else’s
opinion of where the market is headed.
In late July 2002, Lawrence Kudlow, cohost of Kudlow &
Cramer on CNBC, jokingly said that he and cohost Jim Cramer had
called the 2001–2002 bear market bottom seven times and that they
will eventually get it right! But this is no joke. You can’t afford to
depend on someone else’s guesses. You need to make your own
investment decisions, which you can do if you stick with the time-
tested indicators and strategies presented in this book.
FORGET ABOUT DOLLAR-COST
AVERAGING IN A BEAR MARKET
Dollar-cost averaging is another popular investing strategy
bandied about in the canyons of Wall Street. This approach advo-
cates making investments of a fixed amount every month or quar-
Introduction 7
ter no matter what the stock market is doing. The rationale is that
during bear markets, you are buying more shares at lower prices

Buy a diversified basket of stocks and bonds or equivalent
mutual funds and hold them for the long run.
■
Buy-and-hold is the best approach to investing.
■
Market timing is for losers.
■
Dollar-cost averaging is a good strategy.
8 Introduction
■
Financial advisors, brokers, and so-called stock market
gurus should be consulted or followed to obtain the best
possible investment advice and investment results.
■
Tax consequences are critical in making investment
decisions.
Believe it or not, all these beliefs are false! Many intelligent
individuals are not intelligent investors. In making their investment
decisions, too many investors rely only on fundamental research
and totally ignore the technical indicators of stock market investing.
Investors must understand that their thinking may be neither real-
istic nor accurate and that they probably won’t be successful
investors by viewing the world through “rose-colored glasses.”
Neither should investors let tax consequences interfere with
sensi ble stock market strategies. Otherwise, they will end up para-
lyzed and confused, and they will never sell the small losers until
they become big losers. Of course, market timing strategies can be
used in tax-deferred retirement accounts because there are no tax
conse quences. However, don’t assume that taking profits in regu-
lar accounts will work against you. It may or may not. Think about

keeping your wealth.
BE AWARE OF LACK OF CANDOR
IN SOME INVESTMENT AND
BROKERAGE FIRM LITERATURE
Unfortunately, too many investment and brokerage firms do not
provide fair and bal anced investing information to the public. For
example, I still come across incomplete information in investor
material from Northwestern Mutual Financial Network, Merrill
Lynch, Morgan Stanley, U.S. Global Investors, and Fidelity, to name
a few. In the literature they send to investors, I’ve found a chart or
table depicting the reduced annual returns if an investor had
“missed the 10 best days” compared with buy-and-hold.
Obviously, the return will be less if these days were missed. These
firms use this argument to emphasize the virtues of buy-and-hold
investing because they say that no one can predict when those days
will occur.
However, they conveniently forgot to provide the counterar-
gument that by missing the 10 worst days, the performance is much
better if you had been out of the market. Therefore, you are only
getting half the story because these firms want you to stay invest-
ed at all times. One reason is that it reduces their overhead expens-
es and costs of administering the fund to have you stay put.
Second, it eliminates any liquidity problems for the fund that could
be caused by a large number of fund holders liquidating at the
same time. If this hap pens, it could force the fund to sustain
unwanted market losses from selling off holdings in order to meet
the redemption needs of exiting fund holders.
10 Introduction