We updated our similar markets study last night. The results are similar to the first pass. As mentioned in the July 18 video (see below), the slope of the S&P 500's 200-day moving average remains a key differentiator between markets that should have been sold and markets that warranted a more balanced approach to risk management.
The current slope of the S&P 500's 200-day is basically flat, telling us to reduce risk, but not to throw in the towel yet. If the slope of the 200-day turns down especially for more than a few days, we will reduce risk further.
The green arrows in the charts below show the midpoint of the similar historical periods as identified by the CCM Bull Market Sustainability Index (BMSI) and CCM 80-20 Correction Index (80-20 CI). Notice in 1998 the slope of the 200-day flattened out, but did not turn over in an obvious manner. Stocks recovered in 1998 and went on to make new highs.
In 1999, we had a similar situation; the slope of the 200-day flattened out, but did not turn over in an obvious manner. Stocks recovered in 1999 and went on to make new highs.
In 2000, the bear market began in earnest after the slope of the 200-day rolled over in a convincing manner.
The 2007-2009 bear market also ramped up its bearish bias when the slope of the 200-day turned negative.
As we mentioned in the video above, we do not feel 1984 is all that good a proxy for the current technical backdrop. However, when the slope of the 200-day turned up, it was a bullish signal.
Given the recent deterioration in the market's risk-reward profile, we have reduced our mix of risk assets and more conservative assets to roughly 50%-50% depending on the needs and risk tolerance of the client. If the market can find its footing soon, we will maintain that mix for a time. If we see further deterioration, we will raise more cash. The risk portion of our portfolio is mainly comprised of the S&P 500 Index (SPY) and mid-caps (IJK). Our conservative portion is primarily made up of cash, bonds, gold (GLD), and silver (SLV). Our gold and silver represent a hedge against the possible further debasement of paper currencies. The Fed meets next Tuesday; we believe the odds are decent they will make some precious-metal-friendly comments.
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Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). .Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
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Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). .Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
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