The markets continued to struggle yesterday but managed a turnaround in the last hour from another sharp sell off. The effect on our Trend Tracking Indexes was negligible.
Every so often, I like to look at the big picture as to where we are in relation to other historical bear markets. The best graph on that subject is compiled by Doug Short, and I have referred to it in the past several times.
Take a look: A picture is worth a thousand words and this one is no exception. It is interesting to me that the current market drop from 2007 (blue line) most closely resembles or tracks the crash of 1929 (gray line). Sure, nothing is certain, and there is no way to accurately forecast if the current trend will end up like the 1929 scenario. My point is that a directional change can happen either way at anytime; it simply pays for you to be prepared so you don’t end up wandering around in astonishment should the bottom drop out again. Any investor not preparing himself via some kind of exit strategy may be doomed to pay a high price for ignorance—again.
[Click chart to enlarge]
Comments 5
Ulli,
If we break the May 9th low of the SP500, "Katy bar the door" as lots of people may want out at the same time. This is not a prediction, but just a concern. Since our market is looking a lot like 1929-1933 again I am even more concerned especially with all the money the Gov. is throwing at the our economic problem. And I thought President Bush was a big spender. What he spent may turn out to be poke change as compared to the current President's spending, which shows no sign of tapering off. I could use some bail-out money too, but will never get any of it, but will have to pay for those who do get by heavy tax increases and inflation. Inflation is just around the corner as soon as our economic problem starts to improve just watch how inflation pops up.
Ulli,
First thanks for your blog and your willingness to help us all out with no "direct" financial benefit to you.
In reading some of the negative comments of late I can only say, tisk, tisk, to them. Some people just need to place blame on others even though they had "free will" regarding their own decisions.
I'd like to clarify a question on your stop loss. With your International TTI: I also have 2 other indicators of which only 1 confirmed an uptrend in international stocks, thus I used all 3 together which indicated risk was still high (as only 2 of 3 confirmed a buy) thus I only allocated 5% of my portfolio to this particular buy. I only have one small position left representing 1.5% of my portfolio (of 3 I put on) that has not triggered a 7% loss … YET !
Question 1: Regarding the Domestic TTI: Are you using the same 7% stop loss as your indication to get out?
Putting all my cards on the table, With Domestic stocks my confirming indicators did not trigger with yours so I remained out of this buy, although recently I did buy a few individual stocks ( They are still about break-even, high yielders with dividends of 6 – 6.5% for 2 of them and 16% for the third) but a very small share amount which I'd add to if this correction becomes nasty, I'm actually hoping for that!
Question 2, Would you advise selling these cash rich conservative companies where I expect the dividends are safe (although one never knows I'd agree) at a 7% stop loss? ( NOTE: I didn't mention these company names so to not try and put you on the spot as stocks are not your area, at least within your blog, but would be interested in your general opinion. These stocks are NOT high fliers or momentum plays )
Lastly, I wonder about your feelings on High Yield (Junk bond Funds) going forward from here? I focused on High yield FUNDS which buy the "cream of the junk" rather than the "junk of the junk" the lower to lowest rated junk bonds.
I'm up on average some 13% since my high yield buy signal and the funds are paying about 10% +/- currently. It is an area that is often overlooked by the small investor as a way to boost portfolio performance during tough stock market times. And, yes I do have an exit strategy on this area also.
I have so far avoided the ETF's in this area (HYG and JNK) as I've heard some negatives on the way they are structured and allocated. Any light you could share with us on your feelings for these High Yield ETF's would also be a big plus for me and I'm sure for others.
I think we could all gain value from your opinion on the High yield bond market and the High Yield Funds vrs the 2 ETF's mentioned above. I know I'm all ears 🙂
Thanks again for your help and guidance.
Anonymous, Did you mean the March 9th low?
That's a long way from here! Hope you're not holding investments to that point.
My opinion, a head and shoulders top is in and the May lows have been taken out, not a good sign although it doesn't tell you how far this correction can go.
Stick with Ulli's stop points, he's keeping you safe.
Ulli,
Yes Dirk I made a typo should have been March 9th, thanks for pointing that out.
Dirk,
To your questions:
1. Yes, I am using 7% as my trailing sell stop for domestic and international funds and 10% for country and sector funds.
2. I am not into stocks, so that is not my field of expertise. For the most part, the higher volatility does not allow using a 7% sell stop successfully. I have heard of investors using a 15% to 20% stop.
I am not a friend of junk bond funds; although they have they have their day in the sun as well. If you have a couple of ticker symbols, feel free to send them to me via email, so that I can run some tests to see how they would have fared in a hedged situation.
I will share my results.
Ulli…