First, David Gaffen of the WSJ MarketBeat had this to say about today’s market activity:
Where to start? Today’s market conjures nothing more than the image of a man retching in an alleyway, and there really can’t be too many other ways to characterize the session when the strongest performer among major indexes falls by 2%.
The culprits are long but distinguished, including but not limited to market-related concerns (potential downgrades of bond insurers Ambac and MBIA), technical considerations (the Russell 2000 is now officially in a bear market, having lost nearly 21% of its value since it peaked in 2007) and the economic outlook (the Philadelphia Fed survey fell to a level consistent with a recession, and housing starts were terrible, again).
“We’ve reached what I call the vomit stage,” says Michael Metz, chief investment strategist at Oppenheimer & Co. Now, of course such a stage — when investors dump anything they can, as fast as they can — generally produces a swift turnaround reaction, even if it’s short-lived. But Mr. Metz cautions against assuming that’ll happen tomorrow, because options expire, which usually produces funky trading. Tuesday is another story, but he doesn’t extend his optimism long beyond that. “The fundamentals are not very promising,” he says.
That pretty much sums up not only today’s but this week’s (or this year’s) market activity. Our domestic Trend Tracking Index (TTI) barely broke below its long-term trend line by -0.10%, thereby following the lead of the international TTI, which went negative on 11/13/07 and now sits -9.79% below its own trend line.
If you’ve been following my weekly updates, as well as this blog, today’s all-out signal for domestic equity funds/ETFs is merely academic for you, since you should have sold all of your holdings in accordance with my sell stop discipline. Until a resurgence of the up trend occurs, I see no reason to be invested in any of the following:
1. Domestic equity funds/ETFs
2. Country funds/ETFs
3. Broadly diversified international funds/ETFs
There are still some opportunities in selected sector funds, but volatility has greatly increased and many may be nearing the end of their individual trends. If you’re the conservative type, stay safely on the sidelines in money market.
If you’re more adventurous, you can consider the short side of the market, however, I recommend a cautious approach with limited exposure and a tight stop loss discipline. Personally, I will wait till next week to see if there is a bounce back from these lows, and if the TTI remains in negative territory, before I consider adding any short positions.
Comments 2
Here are a few of my thoughts on current conditions:
* I really don’t know what in the world people without a plan would be doing in an environment like this. It’s only because of your web site, blog, and trend-tracking that I could be calmly and rationally writing this message rather than steaming over the losses in my retirement accounts. And my entire family has greatly benefited as well since I’m also responsible for their stock market investments.
* I hung on to VDC (consumer staples) for as long as I could but the fund that I never thought I’d have to sell finally reached it’s 7% sell stop on Tuesday. To me, this is as good a bear market indicator as any. People still need the stuff that companies in this fund sell, but they don’t need the stocks. VDC was my very last long position, most were liquidated in December or even earlier.
* Today marks the massive decline of heretofore strong sectors Industrials and Materials. These have been stalwarts but were crushed today, now joining the party of market decliners.
* Normally bullish newsletter publishers Navellier and Dan Sullivan have turned bearish.
* I’ve been incrementally adding the conservative BEARX since mid-November, and will start looking at other short funds if next week continues along this weeks path. My only concern here is some of my choices (like international fund EFZ) are relatively low volume.
* There simply is no place to hide in this market. Every asset class and style has been hit. According to my personal tracking tools the only broad asset class that has shown any resistance whatsoever to a full-blown sell-off is very selective large cap high dividend yielding stocks/funds. I’m not sure what these investors are thinking but I’m sure they’ll be joining the rest of us shortly.
* Ulli, the work you do and share with anyone who’s willing and wise enough to listen is very much appreciated, especially at moments like this. Two thumbs up.
Best regards,
G.H.
G.H.
Thanks for your kind words. I agree with your observations on VDC, it seemed to go right in lock step with our domestic TTI.
Even though in tumultuous times like this, no investment strategy is perfect, it sure beats not having one at all. This is a difficult period for advisors and investors alike, and being disciplined is the only way to come out on top without too much portfolio damage.
Ulli…