I generally think that I should not invest in a market when it is within 10% of its all-time peak. But then I also generally break my rule so when the market subsequently falls I quickly run out of powder!
Is there good sense in avoiding a whole market eg UK, US, when the main index is within 10% of its all-time high? Is it a strategy worth pursuing?
A grizzled veteran of the NHS
That does not seem logical to me. Buying when markets are trending down is probably not a good idea. The AIM Allshare is down around 35% from peak. The S&P 500 is down around 15%. I'm sure if you did not invest in the S&P 500 when it was within 10%, of all time high, you would have missed out on some large gains. I missed out on the US market because it usually looks too expensive.
After a correction can be a good time to invest.
Markets should go up with Inflation and companies growth?
You can use Moving Averages to see which way the indexes are going. Some investors only buy when indexes are rising.
See Ed Croft post about buying when the Aim is above a certain MA point. Stan Weinstein also had a similar strategy.
As you won't know if the markets has made an all-time high until it has made it, then your question is really about should one buy on a 10 percent or less pullback from the all-time high. My answer is no. Corrections tend to be deeper and more often then not retrace between 38 percent and 62 percent(fibonacci levels). Fibonacci retracements, I find, work best when there has been a strong directional move - not when the market is moving sideways.
It makes better sense to buy(with a stop loss) when the price has closed within 5 percent ABOVE the all time high, as opposed to below. That's because resistance(supply) has been overcome when price goes and stays above any high(including all-time ones).
However, this goes against most people's comfort zone, incuding mine, as we all like to buy low and sell high, instead of buying high and selling higher. You should collect data on your own trades to decide what works best for you.
