Making Money Alert
Your Risk-Management Roadmap
03/24/2010
The sharp sell-off we witnessed in late January and early February, followed by the 180-degree turnaround in stocks from early February to the present has many investors in a quandary about how best to navigate this tricky market terrain. I’ll admit that I’ve found it hard to identify a good entry point for putting new money to work in stocks. I’ve also found the going treacherous for knowing when finally to liquidate long positions held for the past six weeks.
I think a good way to help determine both the buy points and sell points in this market is to develop a roadmap of sorts. The six-month chart below of the S&P 500 Index is just such a roadmap.
As you can see, stocks now trade around 1,170, a mark just slightly below their 52-week high. The key level of technical support on the S&P 500 is 1,120, which is where the 50-day moving average now sits.
I think if the market does start to fall, this will be the key metric to watch. If stocks were to come down to 1,120 and then start to see some buyers step in, it would be a very bullish sign that could be viewed as a buy signal for investors currently on the sidelines.
If, however, stocks were to break below 1,120 and make their way down to 1,080, then I say lookout below. The breaching of this technical support line would constitute a bearish market signal that could be a huge trigger to get out of the market completely, or to start buying bear-market funds that make money when equities are in decline.
So, what happens if stocks continue going higher from here? Though I think this scenario is unlikely, I’ve been proven wrong on this front many times. Obviously, if you are long here, then there’s nothing wrong with riding the wave higher. Just make sure you have your stop losses in place to protect your gains.
ETF Talk: The Potential Silver Lining of ObamaCare (XLV)
After months and months of debates, gridlock and uncertainty, President Obama signed into law his coveted health-care overhaul, “ObamaCare,” with implications for you and your investment portfolio. If you feel like I do about the folly of tax-and-spend politicians adding wildly to our deficit, it’s difficult to have a “glass-half-full” kind of attitude about this legislation. While the plan is intended to provide insurance for an estimated 32 million additional Americans, it is projected to cost $938 billion during the next ten years. But the legislation also may help certain health-care companies, since the number of people who have insurance will grow dramatically, as will health-care spending.
Because it’s difficult to say exactly which stocks will benefit from ObamaCare, since we still are learning about the contents of the unwieldy new law, investors who are bullish on health care may want to consider an exchange-traded fund (ETF) that allows exposure to the entire sector. One such broad-based ETF is the Health Care Select Sector (XLV). Companies in this fund primarily include those that manufacture health-care equipment and supplies, provide health-care services, offer biotechnology and develop pharmaceuticals.
The price of XLV jumped Monday but has been trending downward since then. It now may be approaching levels where bullish investors might be ready to place buy orders. The chart below shows that the frothy overflow of investment interest that surfaced Monday morning appears to be settling down.
The following table indicates the top holdings of the fund. It largely contains big-name health-care companies that should help to limit volatility, compared to a fund that might invest in high-risk, development-stage start-ups.
Although ObamaCare may be bad news for overburdened American taxpayers, the new health-care law likely will boost sales for a number of health-care companies. As you can see from the chart below, XLV has risen sharply in the last month and may have further upside ahead. Like many other investments during this shaky time, XLV is risky, and I do not advise it for the faint-hearted.
As far as the bill itself, the money to pay for the new government spending is going to have to come from somewhere and, unfortunately, I’m afraid it’s going to come from people like you and me. Affluent families, successful entrepreneurs, investors and employers will have to pay additional taxes and fees to fund this unbelievable debt.
If you want my advice about which ETFs to buy and to sell, please sign up for my ETF Trader service by clicking here. As always, I am glad to answer your questions about ETFs, so do not hesitate to email me if you have one. To send an ETF question to me, simply click here. You may see your question answered in a future ETF Talk.
Wise Words from the Global Guru
My friend and colleague, Nicholas Vardy, is a money manager and writer of the weekly e-letter, The Global Guru, which I highly recommend to all of my Alert readers. In the latest edition, titled “The Future Ain’t What It Used to Be,” Nicholas offers us some profound observations on the perils of financial prognostication.
He correctly points out that few economists and market pundits ever really have to account for the accuracy of their calls, while those of us who manage money must be accountable to our clients everyday. He also correctly points out that two of the most accepted prognostications of last year -- the unstoppable rise of the Chinese stock market, and the imminent demise of the U.S. Treasury bond market -- both failed to materialize in 2009.
Nicholas concludes his thoughtful piece by admitting that “it’s tough out there” for investors trying to profit from the trends in this market. He points out that the market hasn’t really done much during the past six months, and that the global rally many expected to take place in the fourth quarter never really happened. Finally, Nicholas points out that the simple strategy of staying “dumb and long” has been the single best moneymaker over the past year.
No, neither Nicholas nor I advocate a blind buy-and-hold investment philosophy. But what we can say, and what we all must admit, is that sometimes simplicity does work --despite what all of the pundits are telling you.
If you’d like to read Nicholas’ fantastic e-letter for yourself each week, I strongly encourage you to check out The Global Guru today.
Listen to My FREE Teleseminar
On Saturday, March 6, we held our latest teleseminar, titled “The Return of the Bear Market.” I want to personally thank all of you who joined me for this event, and as you know, we had a great time discussing ways to deal with the changing tide of the markets.
If you didn’t get a chance to participate in last Saturday’s call, don’t worry. We’ve recorded the entire teleseminar and posted it at our Web site for you to listen to it absolutely FREE.
This one-hour teleconference covers topics such as:
- Why stocks and bonds have the potential to enter a new bear market
- What are the warning signs to look for in the markets
- Where investors can seek safety during the next 12 months
- How you can profit from the crisis
If you would like the answers to all of these questions -- plus a whole lot more -- I invite you to click here for all the details.
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Time for a Little Levity
“A hospital bed is a parked taxi with the meter running.”
--Groucho Marx
In light of the heavy economic and political issues the country’s been grappling with lately, I decided to choose a little, health-care themed humor for this week’s quote. I hope you enjoyed it.
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. Don’t miss out on the 22nd annual MoneyShow Las Vegas, May 10-13, 2010, at Caesars Palace. This event will be your one-stop resource for the comprehensive education, efficient research, and valuable advice you need to make smart investment decisions in 2010 and beyond. Join me and hear leading experts reveal where they see growth opportunities in stocks, bonds, ETFs, commodities, and options. Also hear about which overseas markets may outperform in the near term. Visit The MoneyShow Las Vegas to register FREE online, or call 800/970-4355 and mention priority code 017444 today!
P.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.