My last blog was posted just after the crazy day in the market on May 6th.
The next day the market moved lower and then went up for a few days before reversing down and moving to a new low on May 25, below the low the low of May 6. This was followed by a short bounce and a return to the May 25 low on June 8. The past 6 trading days have been in an uptrend. Yesterday started off very positive with an attempt to break up and out of previous resistance. This failed mid-day and the market closed lower for the day. Today, we are right back up and over yesterday's highs, once again attempting to sustain a move up.
The net result is a market that has been volatile intraday while staying within a 6% range for the past 4 weeks and showing no clear direction after moving down sharply from the highs of April 26.
However, there are some positive signs and a few sectors are beginning to show the strength to lead the market back up. Even so, it is still prudent to be defensive and continue paring back the weaker performing holdings, adding only fixed income equities, and holding money in cash while the market bounces around.
It is frequently frustrating to sit on the sidelines when it appears the market has started an upward move. Although there may be some lost opportunity by not getting in at the bottom of an upward move, there is potential for greater losses by getting in too soon when the move up proves to be a fake out before it reverses down.
Tuesday, June 15, 2010
Friday, May 7, 2010
Thursday, May 6, 2010
Thursday, May 6, 2010 was one of the craziest days in the market, ever. The morning started with fluctuations in a somewhat larger than typical range of about 20 points on the S&P 500, or about 1.7%. Around 1:30 PM EDT the bottom fell out and the market fell 80 points (6.8%) in just over 1 hour, only to be followed by a rally into the close so the final loss for the day was 42 points or 3.6%. This is still a substantial loss for one day, but a lot better than the nearly 100 point loss at the low of the day.
If you had been watching TV, listening to the radio, or reading the newspaper on Friday you were aware of the speculation as to the cause(s) of this chaos. Included were:
computer glitches,
human error,
purposeful price manipulation,
riots in Greece,
the European Central Bank not supporting Greece,
Brown being overtaken by Cameron with a hung Parliament in England,
massive oil spills in the gulf of Mexico,
institutions using computer programmed buying and selling triggers,
or all of the above.
We may never know the real cause or why the measures that are supposedly in place to prevent such disasters, did not work.
While a one day move does not establish a trend it is useful to look at the net result along with the previous week or so. On April 23 the S&P 500 closed at 1217. Six of the next 9 trading days were down days with the close on May 6 at 1128. That's a drop of a little over 9% in 9 trading days.
Friday May 7 started with off a positive note with reaction to a favorable jobs report. The positive trend did not last long and the S&P 500 closed at 1111, down 17 points or 1.5%.
So what does mean going forward. The technical indicators I follow signaled that it is time to move from offense to defense. The signals came quicker than usual because of the large move, but they still triggered at the same places.
This means it is time to be cutting losses, protecting profits and pulling back to raise cash to be available for re-investment at the proper time.
For IRA accounts with individual equities or Exchange Traded Funds, stop orders were hit or adjusted. New investment recommendations are on hold until the market's directional signals are clear. Inverse funds that go up in value as the market goes down, are a viable choice if the downtrend continues.
Mutual Funds in IRAs and 401(k)s are being closely monitored for sell signals. Paring back or completely closing select funds will occur as they show weakness and evidence of violating support levels. If the market continues to move down, clients will hear from me, individually,with specific recommendations for their funds.
Its no fun watching the gains accumulated since early February evaporate in a few short days. It is a time like this when a "buy and hold" strategy can lead to losses of 50% or more. This is when proactive portfolio monitoring to limit losses and preserve capital will increase the likelihood of reaching investment goals.
If you had been watching TV, listening to the radio, or reading the newspaper on Friday you were aware of the speculation as to the cause(s) of this chaos. Included were:
computer glitches,
human error,
purposeful price manipulation,
riots in Greece,
the European Central Bank not supporting Greece,
Brown being overtaken by Cameron with a hung Parliament in England,
massive oil spills in the gulf of Mexico,
institutions using computer programmed buying and selling triggers,
or all of the above.
We may never know the real cause or why the measures that are supposedly in place to prevent such disasters, did not work.
While a one day move does not establish a trend it is useful to look at the net result along with the previous week or so. On April 23 the S&P 500 closed at 1217. Six of the next 9 trading days were down days with the close on May 6 at 1128. That's a drop of a little over 9% in 9 trading days.
Friday May 7 started with off a positive note with reaction to a favorable jobs report. The positive trend did not last long and the S&P 500 closed at 1111, down 17 points or 1.5%.
So what does mean going forward. The technical indicators I follow signaled that it is time to move from offense to defense. The signals came quicker than usual because of the large move, but they still triggered at the same places.
This means it is time to be cutting losses, protecting profits and pulling back to raise cash to be available for re-investment at the proper time.
For IRA accounts with individual equities or Exchange Traded Funds, stop orders were hit or adjusted. New investment recommendations are on hold until the market's directional signals are clear. Inverse funds that go up in value as the market goes down, are a viable choice if the downtrend continues.
Mutual Funds in IRAs and 401(k)s are being closely monitored for sell signals. Paring back or completely closing select funds will occur as they show weakness and evidence of violating support levels. If the market continues to move down, clients will hear from me, individually,with specific recommendations for their funds.
Its no fun watching the gains accumulated since early February evaporate in a few short days. It is a time like this when a "buy and hold" strategy can lead to losses of 50% or more. This is when proactive portfolio monitoring to limit losses and preserve capital will increase the likelihood of reaching investment goals.
Tuesday, March 9, 2010
This Time Last Year
This time last year the S&P 500 hit its lowest level since October 1996. It even went lower than the low of the burst of the technology bubble in October 2002. It was down 58% from its high in October 2007.
Since March of last year there has been a dramatic move up of 72% off those lows with only a few bumps along the road. The latest being a sharp drop of 10% in 13 trading days ending on February 5th. This was followed by a move back up to just below where we were on January 19th of this year.
The net result of all this up and down movement is that the S&P 500 is still 27% below its high point in October 2007.
Is the market going to continue to move up to reach and surpass the previous highs or will it rollover and test previous lows? It is impossible to know the answer. What we can do is assess and manage risk while entering trades for the equities showing the greatest relative strength.
One key tool in assessing and managing risk is understanding whether the market is overbought or oversold. Think of yourself trying to walk on a balance beam used in women's gymnastics. If the balance beam was only 6 inches off the ground your risk is low because you know that if you fall off, you don't have far to fall and probably won't get badly hurt. On the other hand if the balance beam was 6 feet off the floor your risk is high because you have a long way to fall and the probability of getting hurt would be much greater. Although the market is moving up, it is high in the overbought territory. This means trades have to be entered cautiously and monitored closely to prevent the major losses that can occur if the market falters and retreats from current levels.
This makes choosing equities with the greatest relative strength more important. Relative strength is based on past performance and is an indicator used to select the equities with the greatest possibility of reaching desired targets. Various markets, sectors, funds and individual equities are compared to each other and given numerical ratings. Although past performance does not guarantee future performance, it is a useful indicator when comparing and selecting investment options.
In my previous blog I indicated that holders of mutual funds in 401(k) plans were best served by keeping the money from recent sales in a Money Market Fund. Although indicators are now pointing higher, it is still prudent to hold those funds out of the market until there is more confirmation of a sustained move upward.
Small Cap and Mid Cap equities continue to outperform Large Cap. and equities with good dividends are providing a hedge if prices start to fall.
Since March of last year there has been a dramatic move up of 72% off those lows with only a few bumps along the road. The latest being a sharp drop of 10% in 13 trading days ending on February 5th. This was followed by a move back up to just below where we were on January 19th of this year.
The net result of all this up and down movement is that the S&P 500 is still 27% below its high point in October 2007.
Is the market going to continue to move up to reach and surpass the previous highs or will it rollover and test previous lows? It is impossible to know the answer. What we can do is assess and manage risk while entering trades for the equities showing the greatest relative strength.
One key tool in assessing and managing risk is understanding whether the market is overbought or oversold. Think of yourself trying to walk on a balance beam used in women's gymnastics. If the balance beam was only 6 inches off the ground your risk is low because you know that if you fall off, you don't have far to fall and probably won't get badly hurt. On the other hand if the balance beam was 6 feet off the floor your risk is high because you have a long way to fall and the probability of getting hurt would be much greater. Although the market is moving up, it is high in the overbought territory. This means trades have to be entered cautiously and monitored closely to prevent the major losses that can occur if the market falters and retreats from current levels.
This makes choosing equities with the greatest relative strength more important. Relative strength is based on past performance and is an indicator used to select the equities with the greatest possibility of reaching desired targets. Various markets, sectors, funds and individual equities are compared to each other and given numerical ratings. Although past performance does not guarantee future performance, it is a useful indicator when comparing and selecting investment options.
In my previous blog I indicated that holders of mutual funds in 401(k) plans were best served by keeping the money from recent sales in a Money Market Fund. Although indicators are now pointing higher, it is still prudent to hold those funds out of the market until there is more confirmation of a sustained move upward.
Small Cap and Mid Cap equities continue to outperform Large Cap. and equities with good dividends are providing a hedge if prices start to fall.
Saturday, February 13, 2010
A Rocky Start to 2010
2010 was entered with optimism for the market to continue the recovery which started in March of 2009. This optimism was short lived as the market reversed downward after reaching a high for the year on Jan. 19. Over the next 13 trading days the S&P 500 index lost almost 10% of its value.
During this downturn my key indicators showed early warning signs for a sustained downtrend. This signaled a defensive investing strategy which was implemented by tightening stop loss orders and selling selected mutual funds that crossed below critical support levels. International Exchange Traded Funds and International Mutual Funds were liquidated since this equity class's relative strength reversed down after leading the market up since march of 2009.
This past week the major indexes all posted their first weekly gain in 5 weeks. Although this is a positive sign it is too early to switch from a defensive to an offensive investing strategy. New positions will not have market momentum behind them to improve their chances for success. Therefore, any new trades must be accompanied with tight stops to limit risk.
Holders of mutual funds in 401(k) retirement plans are best served by keeping the money from recent sales in a Money Market Fund. If and when the indicators signal an offensive strategy, the money will be used to invest in the available mutual funds that are leading the market up.
During this downturn my key indicators showed early warning signs for a sustained downtrend. This signaled a defensive investing strategy which was implemented by tightening stop loss orders and selling selected mutual funds that crossed below critical support levels. International Exchange Traded Funds and International Mutual Funds were liquidated since this equity class's relative strength reversed down after leading the market up since march of 2009.
This past week the major indexes all posted their first weekly gain in 5 weeks. Although this is a positive sign it is too early to switch from a defensive to an offensive investing strategy. New positions will not have market momentum behind them to improve their chances for success. Therefore, any new trades must be accompanied with tight stops to limit risk.
Holders of mutual funds in 401(k) retirement plans are best served by keeping the money from recent sales in a Money Market Fund. If and when the indicators signal an offensive strategy, the money will be used to invest in the available mutual funds that are leading the market up.
Tuesday, January 12, 2010
2010 Outlook
Summary of 2009
2009 ended the decade with a year of large down and then up moves in the stock market. The year started off by continuing a slide which began in October of 2007. By March of 2009 the S&P 500 index (the most commonly used benchmark to gauge market performance) was down 57% from the previous high. The portfolios of many investors suffered losses of similar magnitude.
In March the market made an abrupt turnaround and went up an incredible 69% by the end of year. Good news for those investors who were holding on to their investments and hoping the market would turn back up. However, even with this dramatic increase the market (and the portfolios of the buy and hold investors) was still 29% lower than where it was a little over two years ago.
While there is no way to predict what the future holds for the financial markets, there are actions that can be taken to help ensure the best possible outcome. We enter 2010 with optimism and must be prepared for whatever the financial markets bring our way. This optimism is backed up by a game plan for managing risk in the market, no matter what the future brings. The game plan is grounded in the basic economic principles of supply and demand and uses the Point and Figure methodology as the core for analyzing the market and taking action.
An example of following this game plan and acting on the signals of the Point and Figure methodology could have been moving your assets to cash for most of 2008 and to equities for most of 2009. Even without picking the exact best time to make these moves, your portfolio might be about twice the value than by adhering to buy and hold.
The Landscape entering 2010
The stock market continues to support higher prices. A key technical indicator turned positive in the first week of the New Year after being in negative territory since October of last year. The long term trend of all of the major indices is positive. Although there is no way to know how long this will last we do know that they can last a long time. For example, the trend of the S&P 500 was positive for five years from 2003 to 2008.
International equities and domestic equities are among the best asset classes. Emerging markets are leading the way in international equities. For domestic equities, small cap and mid cap continue to outperform large cap.
Commodities and commodity related equities remain strong. Although Gold has recently hit record high prices there is nothing to suggest that this trend is over. The advent of Exchange Traded Funds has made gaining exposure to many of the commodity areas as easy as buying an individual stock.
The long term trend of the US Dollar remains weak. International equities, commodities and even domestic equities tend to do better when the US Dollar is weak. Two of the best performing sectors during weak dollar environments have been Basic Materials and Technology.
Constant Monitoring
I continue to monitor the market daily so I can provide my clients with real-time advice to help protect their portfolios from major losses and to increase their portfolios’ value when the market is in an uptrend.
2009 ended the decade with a year of large down and then up moves in the stock market. The year started off by continuing a slide which began in October of 2007. By March of 2009 the S&P 500 index (the most commonly used benchmark to gauge market performance) was down 57% from the previous high. The portfolios of many investors suffered losses of similar magnitude.
In March the market made an abrupt turnaround and went up an incredible 69% by the end of year. Good news for those investors who were holding on to their investments and hoping the market would turn back up. However, even with this dramatic increase the market (and the portfolios of the buy and hold investors) was still 29% lower than where it was a little over two years ago.
While there is no way to predict what the future holds for the financial markets, there are actions that can be taken to help ensure the best possible outcome. We enter 2010 with optimism and must be prepared for whatever the financial markets bring our way. This optimism is backed up by a game plan for managing risk in the market, no matter what the future brings. The game plan is grounded in the basic economic principles of supply and demand and uses the Point and Figure methodology as the core for analyzing the market and taking action.
An example of following this game plan and acting on the signals of the Point and Figure methodology could have been moving your assets to cash for most of 2008 and to equities for most of 2009. Even without picking the exact best time to make these moves, your portfolio might be about twice the value than by adhering to buy and hold.
The Landscape entering 2010
The stock market continues to support higher prices. A key technical indicator turned positive in the first week of the New Year after being in negative territory since October of last year. The long term trend of all of the major indices is positive. Although there is no way to know how long this will last we do know that they can last a long time. For example, the trend of the S&P 500 was positive for five years from 2003 to 2008.
International equities and domestic equities are among the best asset classes. Emerging markets are leading the way in international equities. For domestic equities, small cap and mid cap continue to outperform large cap.
Commodities and commodity related equities remain strong. Although Gold has recently hit record high prices there is nothing to suggest that this trend is over. The advent of Exchange Traded Funds has made gaining exposure to many of the commodity areas as easy as buying an individual stock.
The long term trend of the US Dollar remains weak. International equities, commodities and even domestic equities tend to do better when the US Dollar is weak. Two of the best performing sectors during weak dollar environments have been Basic Materials and Technology.
Constant Monitoring
I continue to monitor the market daily so I can provide my clients with real-time advice to help protect their portfolios from major losses and to increase their portfolios’ value when the market is in an uptrend.
Friday, November 13, 2009
Introduction
This blog is being started to give you a brief overview of recent developments in the market and how they may effect your portfolio. New entries will be posted approximately once per month .
Currently the S&P 500 (the most commonly used benchmark to determine market position) is recovering from a decline in late October and is at its highest point for this year. However, it is still approximately 30% below the high point in October 2007.
The activity in late October this year triggered signals to be more cautious and reduce risk. This is done by setting minimum price levels and then paring back or closing out the weakest performing issues when they go below these levels. Funds generated from these sales are kept in money market accounts until the indicators reverse up and call for a more aggressive investing approach.
Preserving and protecting your assets is the first priority of my advisory service. The actions I took to establish alerts to sell assets were put in place to protect your portfolio from the major losses that can take years to recoup. (The market decline of 58% from Oct. 2007 to March 2009 is a recent example.) Most of the alerts levels were not violated and so only a limited number of sell orders were implemented. Although the market has moved up since the beginning of Novermber and is making new highs, key risk management indicators show that it is still not time reinvest the funds from those sales.
You will hear from me, individually, when investment action needs to be taken.
Currently the S&P 500 (the most commonly used benchmark to determine market position) is recovering from a decline in late October and is at its highest point for this year. However, it is still approximately 30% below the high point in October 2007.
The activity in late October this year triggered signals to be more cautious and reduce risk. This is done by setting minimum price levels and then paring back or closing out the weakest performing issues when they go below these levels. Funds generated from these sales are kept in money market accounts until the indicators reverse up and call for a more aggressive investing approach.
Preserving and protecting your assets is the first priority of my advisory service. The actions I took to establish alerts to sell assets were put in place to protect your portfolio from the major losses that can take years to recoup. (The market decline of 58% from Oct. 2007 to March 2009 is a recent example.) Most of the alerts levels were not violated and so only a limited number of sell orders were implemented. Although the market has moved up since the beginning of Novermber and is making new highs, key risk management indicators show that it is still not time reinvest the funds from those sales.
You will hear from me, individually, when investment action needs to be taken.
Subscribe to:
Posts (Atom)