Prospering in the Coming Good Years
Trading legend Larry Williams has written an answer to bear market guru Bob Prechter's best-seller, "Conquer the Crash." It's entitled "The Right Stock at the Right Time: Prospering in the Coming Good Years." Published in 2002, Williams anticipated the major stock market low later that year as well as the 2003 rally. As the title suggests, Williams believes (in contrast to Prechter) the coming years will be bullish.
Having recently read "The Coming Good Years" by Williams, I was impressed with his historical research to prove that the remainder of this decade should be positive overall. I share his vision of the stock market and economy for the most part, having weighed both the bearish and the bullish cases between the October 2002-March 2003 double bottom, deciding in favor of the latter. It was refreshing to discover that a market veteran of Williams' standing shared my longer-term view of the market.
"The Coming Good Years" is divided in sections covering Williams' various approaches to the stock market. Williams is most noted for his seasonal trading strategies, and he offers many such seasonal trading strategies for stock market traders and investors in the book. He starts with a discussion of the 10-year price pattern and notes the best years for entering and exiting the stock market based on more than 100 years of trading history. As an example, he noted that on balance, investors who purchased stocks at the start of the sixth year of the decade had to wait only until the eighth year to make money. However, investors who purchased stocks in the years ending in nine had to wait almost five years, on average, before showing a profit (pg. 13). "So timing your entries and exits in the stock market is critical," writes Williams. He believes that following the 10-year price pattern is one way to gain an advantage in the business of speculation.
Williams reviews each decade in the U.S. stock market going back to the late 1800s. He reveals that, on balance, even-numbered years tend to be bearish, while odd-numbered years tend to be bullish. He also discovered that the second and third years of every decade present major long-term buying opportunities.
Moreover, Williams found that 11 out of all 11 times the fifth year of a decade has produced a rally or market-up move, making it the strongest year in the 10-year pattern. Writes Williams, "Without a doubt the fifth years of the decades have been where the bulk of wealth has been made. [Yale Hirsch's] work showed a total gain of 254 percent in the five years, making them head and shoulders above even the second-place eight years, which came in with a 164 percent gain." Williams believes the 10-year pattern will repeat again during this decade.
Williams also devotes a chapter to what he calls the "Amazing October Effect." He reviews the seasonal period between October-April and reveals how this pattern can either be a major bull market or bear market strategies tool, depending on what year it is. Read pages 29-39 to find out how the October Effect can be put to good use by stock traders.
Williams also devotes considerable space to the bond market and how bonds and interest rates can be used as a valuable forecasting tool. He also demonstrates techniques for trading stocks using bonds as a timing tool, including using his own volatility stop method. This is reveals in pages 53-62.
Of interest to gold bugs, Williams discusses his take on the "golden rule" of the gold market ("It is not that he who has the gold gets to rule; it is that he who has the smarts gets to buy gold at the right time," pg. 65). Williams emphasizes the tremendous impact the commercial interests have on the gold market and shows which indicator to use to best measure this. He states, "If the gold bug camp would pay attention to what the commercials are doing they themselves would have a much better idea of when to get in and out of this market," adding that "It is unfathomable for me that anyone would think there could ever be a significant market rally in gold without the commercials first assuming heavy long positions."
Williams explains in Chapter 5 why the next move up in stocks will be so spectacular. He shows which technical and sentiment tools are best for stock selection and provides an excellent commentary on how fundamental tools can be combined with stock charts for optimum investing results, with a heavy emphasis on company earnings. This is certainly an area that has been greatly overlooked by most market technicians in recent years, and I would recommend his book based on this discussion alone (pgs. 109-118). In these pages Williams makes a couple of statements that undoubtedly will gall many chart analysts. While I don't agree with everything Williams says in these pages, I do believe that overall he's made a valuable contribution to the furtherance of fundamental studies while simultaneously validating the basis of technical analysis.
Another area of this book I don't agree with is Williams' discussion on value investing and his heavy emphasis on value stocks for the coming years. He also seems to dismiss the notion that tech stocks will enjoy a sizeable rally in the years ahead, a view I do not share. Nonetheless, he provides many concepts and interesting discussions on how to select stocks based on the value-based approach that will no doubt pique the interest of investors who use the fundamental approach.
He concludes his book with a lengthy discussion on money management and its importance to any investor, and for a final kick in the shins to the perma-bears, he shows a long-term chart of the Dow Jones Industrial Average along with the 12-month Rate of Change M3 Money Stock measurement divided by the DJIA. The chart alone is worth a million words and I believe adequately underscores his point that the years immediately ahead are more than likely to be bullish than bearish.
If for no other reason, investors who have read Bob Prechter's "Conquer the Crash" should read Williams' book as an inoculant to counteract the gloomy scenario painted by that author. "Prospering in the Coming Good Years" is just what the doctor ordered to those investors who have been burned by a bearish view of the stock market since the October 2002 bottom, and who missed entirely the 2003 rally. There is a message of hope contained in its pages that is sorely lacking in many market-related books today. The book is available from Amazon.com or from your local book retailer.