Making Money Alert
The Plan's the Thing
05/26/2010
Shakespeare’s Hamlet may have thought that “the play’s the thing,” but last week’s market action has me thinking that “The Plan’s the thing.” The Plan I am talking about here is the Fabian Plan, and last Thursday, The Plan officially went into “sell” mode. The plunging of stocks below their 200-day moving averages was the key metric that drove our Plan into sell status.
Take a look here at the chart of the S&P 500 Index. As you can see, the index plunged below its 200-day moving average (red line) last week, courtesy of the violent sell-off we witnessed on Thursday.
It was the potential for a sell-off amid this extreme velocity that’s had me so cautious about stocks for the past couple of months. Now, that selling has come to fruition. So, what does the breakdown in stocks mean for those still long in equities? I think it means that you should step aside and let this volatility play out.
There is no reason to subject your money to the ravages of what could be the next bear market. With stocks now officially in correction mode, and with the time-tested Fabian Plan now in sell mode, why tempt market fate here? I think the best course of action is to eliminate risk in your portfolio, and that means getting rid of equity holdings.
The only exceptions to this general guideline would be inverse ETFs, bond ETFs or currency funds that have benefitted from the recent flight to quality from risky assets to traditional safe-haven asset classes. Currently, my Successful Investing advisory service is recommending two such funds, both of which have seen nice moves higher, while the rest of the market licks its wounds.
To find out more about the service, and to find out how we’ve been protecting investors’ money for more than three decades with the proven -- market-beating -- Fabian Plan, then I invite you to check out Successful Investing today.
Great Moments in Fabian History 5/26/10
To give you a bit more perspective on the Fabian Plan and just how effective it’s been throughout the years, I wanted to show you something we call “Great Moments in Fabian History.” This is a rundown of some of the major events that have unfolded in the financial markets during the past three decades, along with some of the specific advice that served our subscribers exceedingly well.
September 1976: Dick Fabian self-publishes the book, “How To Be Your Own Investment Counselor.” This was the first (and in my opinion, still the best) primer on the trend-following approach that formed the basis for the current Fabian Plan. After experiencing the devastating bear market of 1973-74, Dick knew investors needed a better way to manage their serious money. Dick demonstrated that with a simple, easy-to-understand plan for beating the markets, investors really could build serious wealth with only minimal time and effort expended on their investments.
April 1977: Motivated by the overwhelmingly positive response to his book, Dick teamed up with his wife Marie Fabian to launch the Telephone Switch Newsletter right from their dining room table. The basic purpose of the newsletter was to report and to monitor the results of the buy and sell signals generated by the plan laid out in his book. In his original newsletter, Dick included funds such as Fidelity Magellan and 44 Wall Street. He reported on the prices of these funds and the major market indices for the previous 39 weeks. He also produced charts of these indices by hand.
September 1979: Doug Fabian joined the newsletter as a mutual fund analyst.
July 1981: The Telephone Switch Newsletter issued a bear-market sell signal. The sell followed subscriber profits of 40% during the preceding 14-month buy cycle. The bear market that followed registered a drop of 27% in the Dow Industrials. This plunge was the first bear market that Fabian subscribers would avoid. At that time, money funds were paying a whopping 18% annually -- accompanied by a nationwide inflation rate of 20%.
September 1982: Dick issued a new bull market buy call that generated returns of 45% in the next 15 months.
June 1985: A buy signal was issued for the newly created International Plan. This buy signal lasted more than two years and produced gains in excess of 140% in international funds. At that time, the U.S. dollar was in a major bear market that provided a strong tailwind to international investments. This uptrend in international markets ended with the 1987 stock market crash.
October 1987: A sell signal on Oct. 15 warned subscribers to move into the safety of the money funds. Four days later, the market experienced its biggest, single-day decline ever. Fabian followers walked away with gains of 23% in calendar year 1987. The Telephone Switch Newsletter was one of five publications to have predicted the decline, according to news reports of The Wall Street Journal. Of course, we did not predict anything. We simply stuck to our disciplined investment approach and followed the rules of the Fabian Plan.
August 1990: The Fabian Plan issued a new sell signal, as Kuwait was invaded by neighboring Iraq. This geopolitical event instigated a global stock market bear that would end only after an American-led coalition of 80 countries booted Saddam Hussein out of Kuwait. We were only out of the market for three months before issuing a new buy signal that led to a 34% gain during the next 18 months.
January 1995: After a year in which the Federal Reserve raised interest rates four times and when most economists were predicting a recession, the Fabian Plan identified a new uptrend that kicked off a bull market run in the late 1990s. During the next five years, the Fabian Plan produced annual gains of more than 20%, led by the technology stock boom and the proliferation of more than 10,000 mutual funds.
April 2000: The Fabian Plan issued a new sell signal for stocks as the NASDAQ market began to fall. A decline of more then 70% ensued during the next three years.
January 4, 2008: The Fabian Plan issued a new sell signal for stocks well before the bear market selling of 2008 intensified. This call put subscribers into the safety and security of the money market. While most investors tossed and turned at night, subscribers to this service slept like babies.
I could go on and on here, but I think I’ve made our point. You see, the Fabian Plan isn’t some here-today, gone-tomorrow gimmick. The Fabian Plan has worked for longer than many stock brokers out there have been alive. And, with a strong adherence to tradition and a constant attempt to learn from the past, we’re going to continue making great calls for you for another three decades.
ETF Talk: Go Intermediate Treasury Bonds!
A fall below 10,000 this week in the Dow Jones Industrial Average -- before Tuesday’s late-afternoon rally -- shows that equities are on shaky ground right now. But in my experience, there’s always a bull market somewhere, and I’ve found what I think is at least a mini-bull in U.S. Treasury bonds.
The European debt crisis has prompted a flight to quality that has been obvious in intermediate- and long-term Treasury bonds. As you can see by the chart below of the iShares Barclays 7-10 Year Treasury Fund (IEF), the intermediate bond sector has raced higher during recent weeks.
In fact, the buying in Treasury bonds has been so fierce that I recently recommended IEF to subscribers of my High Monthly Income advisory service. I chose this fund rather than other intermediate- and long-term bond funds because I think it gives you the best opportunity to profit from conditions in the Treasury bond market. This intermediate-term bond ETF has enjoyed a very healthy run higher since early April. The gains in IEF now have the fund trading well above both its short- and long-term moving averages.
When you own IEF, you get a fund that seeks to approximate the total rate of return of the intermediate-term sector of the U.S. Treasury market as defined by the Barclays Capital U.S. 7-10 Year Treasury Bond Index. That index is market-cap weighted, and it includes U.S. Treasuries that have remaining maturities of between seven and 10 years. These are non-convertible, BBB- or better bonds as rated by Standard & Poor’s.
Perhaps the most attractive aspect of the intermediate-term Treasuries is that the United States does not have the same kind of debt issues as struggling European countries such as Greece, Portugal and Spain (at least not yet). And while I am not particularly bullish on Treasury bonds in the long run, I do think that right now U.S. bonds have become the go-to port in the storm for income investors around the world who are anxious about the prospect of sovereign debt defaults. This kind of global worry should be viewed as a signal that it may be worth investing a portion of your assets in intermediate-term U.S. Treasuries to let you take shelter from the current market turmoil.
As usual, I do not recommend that you buy IEF or any investment without a protective stop loss in place. To get my latest ETF advice and my recommended stop price for IEF, you should consult my High Monthly Income trading service.
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please sign up for my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.
Listen to My Latest Fixed-Income Strategies Teleconference
Last week, we conducted our latest teleconference, titled “Sound Fixed-Income Strategies in an Uncertain World.” In this seminar, I outlined the conservative fixed-income strategies that I am implementing during this time of unprecedented financial challenges.
No doubt you’ve been following the news of late in Europe. The continent is facing a crisis in terms of its debt, currency and financial stability. The euro has fallen more than 10% so far this year, while short-term interest rates in some countries have risen to more than 20%. Countries such as Greece, Portugal and Spain all have had their credit ratings cut, and all face debt-ridden economic futures.
For months now, I’ve been saying that these problems in Europe were bound to spill over into U.S. investor portfolios -- and that’s exactly what’s happening right now.
Here are five key points you’ll learn in this seminar:
• How does the crisis in Europe affect your stocks and mutual funds and what should you do now?
• What will be the next big move in interest rates and our economy?
• What fixed-income investments should be avoided right now?
• What are the right fixed-income strategies for the current market environment?
• My outlook for the U.S. stock market and equity markets around the world.
To download the seminar, please click here.
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Stuck in a Storm? Do a Rain Dance
Well I’m living in the desert with a one eyed dog
You could lead a blind man out of Vietnam
Cause everybody’s begging, everybody wants a chance
When you’re stuck in a storm, well do a rain dance
Ryan Bingham, “Sunrise”
The country music star’s folksy lyrics actually remind us of a very profound lesson in life; namely, that when things get really tough, the best response often is to embrace the challenge and meet it head on. A more common way of stating this principle is, “When life gives you lemons, make lemonade.” I just think, “When you’re stuck in a storm, well do a rain dance,” is a lot more poetic.
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.
Sincerely,
Doug Fabian
P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.