Market participants have been observing what is supposedly called a head-and-shoulders pattern in the S&P 500. Once its lows were violated, they anticipated further downside but this scenario failed to materialize as our benchmark made a u-turn at 1010 points. Dynamic System correctly signaled a long entry.

Since then we could recover quite a bit and rescue ourselves back into the safe zone of 1050 and above. Currently we can consider this a fake breakdown, to levels which the market is unlikely to return to again.

The rally on July 20 was a very encouraging day for bullish investors because on that day we marked a higher low in this new uptrend. Therefore, setting a stop loss order there is the maximum allowance we should give this market.

We are now looking to break the 200 moving average that has been quite a problem area recently, and would welcome a decisive breakthrough of the 1100 mark in the coming few days.

There is always a major trend that dictates the wiggles intraday. This has to be the focus to be a successful trend follower because only then the activity being observed day by day can make sense. Just because someone says it is “merely short-covering”, does it mean a trader should better not reap the profits of a rally? It could go down anytime, we are told.

The average investor is missing out yet another huge opportunity because he is being fooled into believing that the next crash is just around the corner. So after the dot-com bubble, where he refused to cut losses and after the financial crises, in which he was forced to give up his holdings, he is now in denial and – as always – doing precisely the opposite of what he should be doing.

Fortunately, at Trend Architect we have the vision to make trend following available to everyone. We put great effort in making this as easy and affordable as possible. With just $39 per quarter you can join the big trends of the financial market.

• A completely new client area
• See our current position by checking the fund’s portfolio
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• Access to all recent and archived trading signals

We hope that you feel comfortable with our new design immediately, and always welcome your feedback for further enhancements. Go to Trend Architect.

Before the trend bent recently, we exited the market on April 27 (subscriber content), on time to protect client money. Year-to-date Dynamic System is beating the benchmark with a +9.24% return, compared to a loss of -0.16% in the SPY (S&P 500).

Chances are high that the sell-off last Thursday was a trigger to put an end to climbing a wall of worry. Whether it was a computer glitch or not, it definitely was a reason to awaken the long-term buy and hold folks, and get them back to reality.

The bullish scenario we envisioned roughly two months ago is put on hold, as the index smashed through the 200 EMA like a hot knife through butter. We will therefore stay on the sidelines and observe the market closely for a new entry. Be there when Dynamic System gives a signal.

The market’s meltdown in 2008 has reignited a ferocious debate about the merits of buy-and-hold investing vs. timing the market. When using exchange traded funds (ETFs) as part of your strategy, you do have a third option.

The buy-and-hold side is saying that no one can beat the market over time so sticking to a long-term plan is the way to go. Proponents of the buy-and-hold strategy argue that predicting short market bursts is basically impossible, and they believe that long-term investing provides better numbers. Even considering the recent market downturn, people who invested a long time ago are still significantly up from when they first started investing.

It is merely common sense that individual companies, or whole economies for that matter, have their blooming and inevitable glooming phases. Ignoring this nature of finance is pure irresponsibility toward your money.

The “market timing” side simply points to the fact that those who held onto their investments are probably regretting it, remarks Silicon Valley Blogger for Wise Bread. This part may be true; many investors lost 40%, 50% or even more during the financial crisis. Some of those investors have had to delay or call off retirement entirely. Making up that lost ground could take years.

For the average retail investor, buy-and-hold investing along with regular portfolio rebalancing strategy has proved to be a successful combination. Institutional traders or people with large bank accounts do better with stock market timing since they are able to hire professionals, obtain top resources and use advanced strategies. Of course, an investor may have a long-term investment egg and dabble in the markets with some of loose pocket change.

Market timing and buying-and-holding are two extremes. You do have a third option: trend following.

What is being utilized in trend following is a simple concept that once a trend has been established, it is not easily bent. For example, if the market is rising overall, buyers must be possessing greater power than sellers. Resistance on the way up is therefore merely regarded as a roadblock on the way to even higher prices eventually. Having this in mind, allows the average investor to jump on a spectacular opportunity even at a later stage of the trend. You do not need insider information to invest successfully. Trends are easily spotted by simply looking at a chart.

Proper risk management is key in maintaining our hard-earned savings. The trend following approach suggests that the possible loss is always known before entering a trade because a trend follower sets a pre-defined stop loss area. This is usually the area where the reason for a particular trade is no longer given (say, a break of an uptrend).

As the economist Kenneth Arrow long ago pointed out, most of us prefer a gamble that has a 100 per cent chance of a small loss and a small chance of a large gain to a gamble that has a 100 per cent chance of a small gain but an uncertain chance of a huge loss. By knowing our maximum loss in advance, trading is no longer a risky gamble as it is commonly believed. Now we have to question, who really is the gambler? Someone holding onto falling share prices until its company is bankrupt, or someone who cuts the trade and moves on?

Now that we reached a new recovery high and are about to break through the 200 weekly EMA, chances are high that the market will go for 1250-1260, a gain of 8.7% from here. Consequently, this EMA is expected to turn around bullish.

If you have been a day trader and observed the S&P 500 closely back then, you will definitely remember how the index reacted strangely at the 1260 levels pre-Lehman Brothers. Not merely on one occasion, but each time we ranged in that area on several days.

During those days, I have been active in trading groups, and kept pointing it out to other particpants. I know other traders found this level weird, as well. We could not explain why, but “something was there”. So as we recover back to this area, I’m going to be very watchful.

Subscribers are already perfectly positioned to exploit such a move. A trading signal has been published on February 25 by Dynamic System. This trend following position is paying high dividends to all of us. Learn more about Dynamic System, if you like to follow our trading signals.

The conclusion is that we can expect a bounce here. The first challenge is awaiting us at the upper range of the downtrend channel from which we sold off yesterday afternoon. Breaking this can be an attempt to break the intermediary 1,100 resistance. Dropping below the 200 EMA, however, can result in some serious outcry.

By looking at the intraday activity, we can observe a cautious uptrend toward resistance areas. These are especially the 20 and 50 EMA in the daily chart (also visible in the Dow Jones). If bears are able to defend the resistance areas and break the small uptrend in that process, we should get more defensive.

Closing above the moving averages, however, can be an attempt to reach for January’s highs.

As trend followers, we try to hold onto this trade for as long as possible. I would like to give a short update on what is currently being observed: A very visible uptrend channel in the SPY, which took shape since mid-August, has been violated today. Another reason for concern is the break of the multi-month support level at around 109.00. Both of these breaks signal more intermediate weakness ahead and do not happen for no reason.

Yesterday’s announcement by the Federal Reserve to leave the interest rates unchanged was celebrated with cautious enthusiasm initially. It dissipated entirely today and we are resuming our downtrend.

• Make trend following straightforward and available to anyone
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The product with which we want to achieve this goal is already very profitable at an extremely attractive price. If you take into account how client’s funds increased by nearly 61% in 2009, the $39 subscription fee is compelling! Read more about our vision, Dynamic System’s performance, and other information on our homepage.