If the stock market is rising and giving you solid gains, chances are it is what’s known as a Bull Market. And it is the dream of most investors to be fully invested when a new bull market has just begun.
At first glance it may seem like a silly thing to try – especially when there are perfectly qualified people like financial planners or stock brokers telling you it is impossible. But what if there was a way to know, with a high probability, that a new bull market was starting?
Ken Fisher, in his book “The Wall Street Waltz”, discovered that unemployment was the key. Why? It’s simple: when the economy and the stock market are riding along nicely and moving upwards as they should, unemployment will never rise too much. This means that people are working, companies are making profits, and both of them are spending this money and stimulating the economy.
But the opposite is also true – if less people are working (unemployment up), then they are also spending less, companies are making less profit, and the stock market will be in a decline.
This is where Ken formed his “1 Percent Rule” – where if unemployment figures rise by more than 1 percent, this is a good time to start putting money back into the stock market. While it is hard to pick the exact bottom of a new Bull Market, Ken says this rule will get you in the ball park and ready to take advantage when it comes along.
Another way to say it is that cyclical stock market lows thoughout history haven’t happened without a 1 percent rise in the rate of unemployment. It happened in 1970 after two years of falling stock prices, and it happened in 2009. But also many times along the way.
There is one caveat however – the unemployment rate is not as reliable when it comes to predicting peaks in the market. This is because the stock market actually leads the over economy anyway in that regard. But Ken did find that a major peak in stock markets rarely happened without unemployment falling (jobs up) for two years.
So what can you do with this information? Well next time the stock market is falling in a bear market, keep an eye on the news for a time when the unemployment rate rises more than 1 percent. When it does, it might be a good time to get back in the stock market.
Learn how to avoid downward markets and make more with your investments. Dave’s site www.asxmarketwatch.com has free courses, free research and a free weekly market watch.
categories: stock market, investing, trading, finance, wealth
