When the intra-day mini crash of 1,000 points in the Dow occurred on May 6, most investors thought of it as an aberration and did not consider the possibility that we might actually revisit that price level.
Here we are 30 days later, and we have broken through it decisively. Yesterday’s rally attempt was wiped out during the last 30 minutes of trading, and the major indexes closed at their lows for the day.
Our international Trend Tracking Index (TTI) has been stuck in bear market territory since 5/7/10 (currently at -5.94%), while the domestic TTI has been hanging on by staying above the trend line. At times it has come within striking distance of succumbing to bearish forces before the bulls managed to save the day.
Yesterday’s sell off pulled the domestic TTI again to within +0.12% of moving into bearish territory; close, but no cigar. Another down day similar to yesterday, and we will surely be heading below the line.
If you followed and executed my recommended sell stop discipline, you should have sold your domestic equity holdings some time ago, so, when the actual sell signal occurs, it is merely a formality confirming the already established downward trend.
If you have a small equity position left you wish to hold for whatever reason, you may want to consider hedging it once we have actually broken below the trend line for the domestic TTI.
In our managed accounts, we actually have such a (conservative) mutual fund that covers some equities, bonds, gold, silver and currencies. Due to the size of the holding, and the fact that we are still partially within the 90-day redemption period, I may hedge it for the time being to guard against sudden further down moves.
Market technicians are trying to figure out whether we are near a bottom or not. The 1,040 level of the S&P; 500 offers the nearest support by being part of a long-term trend line since last July.
However, with the European debt crisis only being in the first inning or so, nothing would surprise me on the downside. We could take out that 1,040 level before breakfast today and be back in no man’s land.
Right now, we are still in that range where establishing new long positions doesn’t make any sense while it’s too early (and risky) to get involved in outright short ones. Be patient and wait for the market to give a better indication as to where we’re headed next.