FAQ 2-General Indicator Usage

 

General 401k Trend Indicator Usage Questions

I missed the last trend indicator change for indicator #1. Should I exchange into a mutual fund several days or weeks after the trend indicator change to “Up”?

401k Trend cannot give advice on taking any investment action. The publisher’s personal choice is to handle as follows:

  1. For late entry into “Up” cycles: Use Indicator #2, the “Major Market Trend Indicator” (Short-Term), to enter late into “Up” cycles in indicator #1.  Wait until the next time indicator #2 changes to “Up” to enter.
  2. For late entry into “Down” cycles: The publisher will reallocate mutual fund positions immediately.
  3. The best approach – always monitor the indicators and respond with appropriate action immediately.

How long have the 401k Trend market timing indicators been in “live” use?

The original indicator (#1) was introduced at 401ktrend.com in August 2006 and has gone through one minor revision, indicator #2 was introduced in 2008.  The system is currently experimental and in a “proof of concept” state. As with any experimental market timng system, the risk of failure is present and some failures should be expected.  No market timing system is perfect.

Do the market trend change indicators always work?

  • No. The indicators are effective 65-85% of the time. Please read the legal disclaimer.
  • Market risk is always present.  Sudden market drops, such as those due to disasters such as September 11th, can happen during an “up” indicator.  A large market drop will occur at some point in the future due to the inevitability of natural and man-made disasters.
  • Because the indicators keep us out of the market at certain times there is less risk of being exposed to a sudden drop. Some believe that the US government has hidden mechanisms in place to reduce the likelihood of market drops after such disasters. Search the internet for “plunge protection team” for further information.

Will the market trend change indicators move from “Up” to “Down” when the market hits “peaks” or periodic “highs”?

Not always; at times Indicator #2 will switch from “Up” to “Hold-Reduce” when the market is near new highs, suggesting that a move to more conservative positions is appropriate.

Do the indicators move to “Down” during very small down-turns?

  • Because 401k providers and retirement plan providers restrict frequent mutual fund exchanges, the indicator #1 is designed to remain in “Up” mode for longer durations – even through some down-turns. However, a down-turn may cause a brief signal (and possibly a false signal).
  • Indicator #2 will move to “Down” or “Hold-Reduce” for some small down-turns.

The “HOLD-REDUCE” indicator suggests staying invested during potential down-turns. Why would one want to remain invested during small down-turns?

The publisher, as a long-term investor, chooses to stay invested in small-down trends to avoid missing up trends.

The system does suggest reallocating to conservative funds in down-turns. By investing in a conservative fund such as the Dow Diamonds (DIA) during the down trend from 2000-2003, an account would have decreased 16% at a time when many people were losing 50-90% in aggressive technology funds. The NASDAQ 100 (QQQQ), an aggressive technology fund, lost 68% during the same period.

Will my 401k or mutual fund provider penalize me for entering/exiting positions during a short period of time?

Many 401k funds and other mutual funds have exchange fees, short-term trading fees, and other penalties. Penalties may include suspension of the ability to exchange between mutual funds. Please consult with your 401k provider or retirement plan administrator. 401k Trend encourages all readers to carefully understand all mutual fund exchange restrictions, redemption fees, penalties, short-term trader restrictions, broker commissions, SEC fees, dividend implications, and other policies/charges involved in investing.    Your 401k provider, 403b administrator, or other retirement plan provider may temporarily classify you as a market timer or frequent trader and restrict your mutual fund trading capability.

I’m very interested in using your service for my Fidelity 401K (www 401k com).  I am only allowed to trade a max number of 4 times per year or in and out of a fund every 30 days due to excessive trading rules). Will this be a problem?

I have similar policy restrictions on my 401k, this system works well for me given my “frequent trading restrictions. Please make sure read the “legal disclaimer” section for further direction.  We encourage you to operate within the policies of your provider – care must be taken to understand those policies.

What is the difference between the Major Market Index Indicator #1 (Long-term) and #2 (Short-term)?

  1. The #1 (Long-term) market timing indicator typically will go for several months or even years between “UP” and “DOWN” indicator changes. It is more suitable for those readers that pay less attention to their 401k accounts.
  2. The #2 (Short-term) market timing indicator will change every few weeks or months. It is more suitable for those who wish to more actively manage their 401k accounts, Roth IRAs, brokerage accounts, and other mutual fund investments.

Can I use the #2 (Short-term) indicator with my 401k?

Yes, indicator changes for #2 (short-term) typically occur after several weeks or months, making it suitable for 401k’s where you can enter/exit funds after holding them for 30 days. There will occasionally be a quick indicator change (less than 30 days) where care is needed to avoid penalties.

Which indicator does the publisher use for his 401k?

The publisher is currently using #2 to manage 100% of his 401k and Roth IRA investments.

The 401k site includes historical performance for #1, will you also post performance for #2?

Once we accumulate more history we will post performance for #2.

The #2 indicator was new in 2008, how accurate is it?

The indicator was back tested to 1996 and the publisher has used it live for his own accounts since mid-2007. However, the indicator has a short history of “live” indicator change performance. As a result, the indicator is experimental and in a “proof of concept” state.