There's enough ideas about what to do now as Bernanke steps to the plate Friday to either regurgitate familiar messages, provide more QE, conduct more coordinated QE with other central banks or something not imagined by this carbon based investor. And as luck would have it, the day before this announcement the S&P 500 tested its 1400 level of support. I think the HAL 9000s must be on autopilot for that one.
September and October are fraught with perils including eurozone drama, the Fed to U.S. elections.
What's an investor to do?
For our part we've moved heavily to the sidelines given weekly DeMark 9 setups of two weeks ago. From those generally in my experience we can just move sideways or correct nearly 70% of the time - a pretty good batting average. Failing that a rising trend most likely occasioned by more money printing would steamroll the indicator and most others. Let's just call it the "more money than brains" effect.
But since you may not have our preferred tool at this time, what are other things you might do to protect yourself? After all, sleeping at night free from worry is important to most investors. Never mind that greed and fear can haunt you.
You could tighten your stops if you're long. In this environment with machines running Wall Street these could be blown apart on any major gap down. Sure, you could use "limit" orders and that might prevent a poor initial result but if markets continued to drop precipitously you're still out of luck.
You could buy some put options on the S&P but that might not be your thing. And, if you did, which should you choose? As a former options principal my style would be to buy an "in the money" put option with a duration shortly beyond the November election. If you're wrong and markets rally you can close your position and write-off the loss as the cost of the insurance premium. There are more sophisticated option related strategies but they're quite complex for most investors.
You could buy an inverse equity ETF like ProShares' Short S&P 500 ETF (SH) to hedge and perhaps just hold for a month or so given potential tracking inefficiencies.
If you're bullish, you could put a buy stop limit order beneath the current market, and if it falls sharply you'll get a cheaper price - lucky you!
Moving to the sidelines is the least costly unless you're consumed by the fear of missing out on a big rally. This is more common than most imagine since bulls like to tell you with certainty that you'll miss the first move which is always the biggest. But I've always reminded investors of one caveat - you'll miss the first move but in which direction? Since we're always willing to short if we have a signal to do being ready to go long or short from cash is equally as important.
So where does this all leave us? Probably just as confused and frustrated as you.
Meanwhile, back at the ranch Wall and Broad markets sold off as rumors persisted there won't be QE3 because conditions are just too good. Seriously.
Jobless claims missed (374K vs 370 expected & prior revised higher to 374K0 allowing headline writers to call things unchanged. Personal Income was unremarkable (.3% vs .3% expected & prior .3%) and Consumer Spending rose (.4% vs. .4% expected & prior .0%) meaning more spending than income. The Fed's favorite view is PCE (1.3% vs 1.5% prior & "core" 1.6% vs 1.8% prior) which suggested higher prices are contained. Mrs. Bernanke doesn't shop and "the beard" has a limo so no worries.
In the eurozone confidence dropped to 86.1, the lowest since…wait for it, August 2009. China stocks dropped for the 4th straight month. Separately, copper demand from China was the lowest in 15 years - that's quite "a tell" of declining economic activity.
This is an abbreviated post targeting just a few markets since everything is Bernanke dependent now.
Volume on selling naturally rose to the highest level this week but was still low historically. Breadth per the WSJ was negative.
Continue to Currency & Commodity Market ETFs
Continue to Overseas Sectors & ETFs
The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.
The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
There's more economic data Friday. Bulls will try to save the week aided by Bernanke. Today is the last of the shorter posts we've made as Friday we'll post the full deal.
Disclaimer: The ETF Digest maintains active ETF trading portfolio and a wide selection of ETFs away from portfolios in an independent listing. Current "trading" positions in active portfolios if any are embedded within charts: Lazy & Hedged Lazy Portfolios maintain the follow positions: VT, MGV, BND, BSV, VGT, VWO, VNO, IAU, DJCI, DJP, VMBS, VIG, ILF, EWA, IEV, EWC, EWJ, EWG, & EWU.
The charts and comments are only the author's view of market activity and aren't 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 aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
