What is a Market Timing Indicator?

The right market timing indicator can keep you ahead of the market curve and give you insight into when to dive in and when to hold back.

To understand what a market timing indicator is, we have to first look at market timing.

Market timing is an investing strategy based on identifying the best times to buy or sell stocks. There are many ways to use market timing, but at the most basic level, it’s the “buy low and sell high” approach. Investors use a market timing indicator, or more likely several indicators, to figure out when those buy and sell points are. 

The problem is that there are more than a few market timing systems out there. Some are okay, and most will work for at least a short time, but then not work at all. As much as that can complicate things, once you simplify and test your indicators, it’s not as complicated as it seems.

We have a few indicators that we use here at Cabot, but one very simple market timing indicator is the Cabot Trend Lines. Basically, if both the S&P 500 and the Nasdaq Composite close two straight weeks above their respective 35-week lines, it’s a buy signal; if both close two consecutive weeks below them, it’s a sell signal. Using such a long-term moving average won’t result in pinpoint signals, but that’s the point—it keeps you on the right side of the major trend.

Remember, though, this market timing indicator is a trend following measure, not a trend predictor. To make big money, you simply have to stay on the right side of the major trends. 

To learn more, download our FREE report, Technical Analysis of Stocks: How Relative Performance Works, Why Trading Volume is Important, and Other Chart-Reading Lessons.