Making Money Alert
Behold the Market Attitude Adjustment
10/28/2009
Over the past two weeks, there's been a decided attitude adjustment in the equity markets. Sellers have stepped in and taken their profits off of the table, and the sell-off now has pushed the S&P 500 Index down to its short-term, 50-day moving average.
If we look at the chart below of SPX, we see that the trend line higher that started in March actually has begun to wane. The bright blue trend line I've drawn here represents the upward trajectory of this market over the past eight months. As you can see, we finally have started to come back down off of that trend line. What this means is that we could be in for a protracted struggle between buyers and sellers during the next several weeks. It also could mean that we are finally starting to see this market turn bearish.
If we see this market break below SPX 1,025, it could mean some very tough times ahead for stocks. If this happens, you'll want to be prepared -- but how do you prepare yourself for a sharp market decline?
First, make sure you have stop-loss orders set on every equity position that you own. Second, make sure that you have a few inverse funds at your disposable. I am speaking of investment vehicles that move higher when the broad market indices are in decline. Finally, don't come to the equity party without a plan. When it comes to your money, don't play the guessing game. You need to have a plan in place that lets you know when to be in stocks, and when to avoid them.
All of these aforementioned principles are alive and well, and operating beautifully in each of my investment advisory services. In fact, right now, subscribers to my Successful Investing , High Monthly Income and ETF Trader advisory services have stop losses on nearly all of their invested positions. In one of these services, we are holding several positions that are making us money even as the market continues wallowing in the red.
If you want to find out how you can protect yourself with a sound investment plan, and if you want to make money even when Wall Street runs for the exits, then I invite you to check out all the Fabian investment advisory services.
Rotating Leaders, Rotating Laggards
One clear sign that a market has reached the top is a rotation of market leadership. When sectors that have led the market higher begin to falter, and when laggard sectors begin to show signs of life, you know that a changing of the guard is underway.
During the past 30 days, we've seen several sectors that have led the market higher through much of 2009 begin to falter. Formerly leading sectors such as financials (down 5%), basic materials (down 4.5%) and transportation (down 5%), all have had tough slogging during the past four weeks.
Conversely, stocks in the formerly beaten-down energy space (up 4%), consumer staples (up 2.7%) and rising long-term interest rates, i.e., falling bond prices (up 2.5%), now are taking center stage as market winners in the last 30 days.
I think if we continue to see a sell-off in stocks, that sell-off will be worse in those sectors like financials, basic materials and transportation. That means if you are holding long positions in any of these sectors, it may be time to start thinking about reducing that exposure.
Of course, it also means that if you are looking for new sector leadership, you may have to look at sectors that didn't fully participate in the run up that started in March.
ETF Talk: Is Real Estate Really the Land of Opportunity?
It remains to be seen whether a tepid recovery of the housing market now starting to take shape can be maintained. The good news for investors is that there are two exchange-traded funds (ETFs) that allow you to play the real estate market whether you are an investor with a positive outlook, or a more negative view.
The table below shows the top ten holdings of the Dow Jones U.S. Real Estate Index. This is the same index used by both of the ETFs that I am featuring today.
How Do We Reduce the Deficit?
Last week, I read a fascinating post on the blog of one of my favorite pundits, Mike Shedlock, better known to his audience as "Mish." In his post, Mish analyzed my friend and fellow market pundit John Mauldin's recent article on how to solve the nation's fiscal mess.
John offers some insightful solutions to our budgetary quandary, and some of them could certainly be considered extreme. Mish takes on each of John's suggestions, and he goes even further in his recommendations on how to get our nation's fiscal house in order.
Interestingly, both John and Mish think our military budget and our foreign entanglements eventually will break us. Both also offer up the radical suggestion that we should drastically slash military budgets; Mish even says up to 70%!
If you want to see two no-nonsense market mavens take on the issue of our fiscal fiasco the way we wish our politicians would, then I strongly urge you to read Mish's blog piece by clicking here.
Depression-Era Historical Analysis
"The Great Depression was a failure not of capitalism but of the hyperactive state."
-- Paul Johnson, introduction to Murray N. Rothbard's, America's Great Depression
Capitalism has certainly taken its lumps over the past year -- lumps that, in my opinion, it doesn't deserve. If you want to know how capitalism started to really get a bad name, we have to go back to the Great Depression. Contrary to what many people accept as economic gospel, the Great Depression was not capitalism gone wild. Rather, it was created, and prolonged, by too much government. If you really want to educate yourself about the true causes of the Great Depression, then read Murray Rothbard's fantastic book, America's Great Depression. I guarantee that after reading this work, you'll have a much better understanding about the pernicious effects of government intrusion in the economy -- both then, and now.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to Ask Doug.