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Technically Speaking: Eating Sardines

This past weekend, I discussed the recent weekly violation of the market back below its respective 50-dma and the triggering of actions in our underlying portfolios.

'If the market fails to hold the 50-dma by the end of this week, we will add our hedges back to portfolios, rebalance risk in portfolios and raise cash as needed.

We did exactly that on Friday by reinstating our short-market hedge and raised some cash by reducing some of our long-equity exposure. While previously we had only hedged portfolios, the action this past week to simultaneously reduce some equity exposure was due to both of our primary "sell" signals being tripped as shown below."

Notice that while the much surged more than 1% on Monday:

  • Both "sell signals" remain firmly entrenched at relatively high levels

  • The market is not oversold as of yet; and,

  • Prices remain below the short-term moving average.

All of this suggests the correction process is not yet complete.

On a short-term trading view, the consolidation process continues with the Monday's rally also remaining below the 50 dma keeping short hedges in place for now. This is particularly the case, given the confirmed "sell" signal on a weekly basis as noted above.

"Most importantly, the market is currently in the process of building a consolidation pattern as shown by the 'red' triangle below. Whichever direction the market breaks out from this consolidation will dictate the direction of the next intermediate-term move."

"Turning points in the market, if this is one, are extremely difficult to navigate. They are also the juncture where the most investing mistakes are made."

Over the last several weeks, I have been providing constant prodding to clean up portfolios and reduce risks. I also provided guidelines for that process - click here.

The rally on

This article was written by

Lance Roberts profile picture

After having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; I have pretty much "been there and done that" at one point or another. I am currently a partner at RIA Advisors in Houston, Texas.

The majority of my time is spent analyzing, researching and writing commentary about investing, investor psychology and macro-views of the markets and the economy. My thoughts are not generally mainstream and are often contrarian in nature but I try an use a common sense approach, clear explanations and my “real world” experience in the process.

I am a managing partner of RIA Pro, a weekly subscriber based-newsletter that is distributed to individual and professional investors nationwide. The newsletter covers economic, political and market topics as they relate to your money and life.

I also write a daily blog which is read by thousands nationwide from individuals to professionals at www.realinvestmentadvice.com.

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Comments (14)

coffeebreak profile picture
"I hear from Mad Money he says this company is 26x valuation, that company is cheap 10x valuation. What does it means? Thanks for info guyz"
ha ha. the Mad Money advice is for mad investors....thus higher risk profiles. do not forget that it is MadMoney.....means you should be mad and with loads of money ready to burn.....26x...you are paying higher price for the stock.....the demand is higher for the listed business......buying future earnings, but paying current stock price.....of course expecting higher stock price later.....quite easily you can overpay the stock.....the stock price depends on the stock quality/prospects and/or the market trends/liquidity.
snosaint profile picture
Allegorical for crypto's
I just went to portfoliovisualizer.com and tried a 12 month moving average timing of the SP 500 using VFINX for 1988 to current and got a very different result than the graph in the article, not sure why. The ending values were very similar timing vs buy and hold although drawdowns were reduced of course.
Does the above chart also reflect moving to cash during the narrower "whipsaw" periods? That is the typical criticism of trying to time the market.

Also Lance's weekend articles show a 25/50/75/100 staged approach where "fully in" is actually 60% stocks. The timing chart above seems to be alternating between all stock and all cash?
Comfortably Numb profile picture
Always enjoy your articles Lance. Thanks.
coffeebreak profile picture
"Higher rates of return require an exponential increase in the underlying risk profile."
ye, ye. returns depend on risk profiles and risk exposure....thus higher returns = higher risk. but with cheap/free money it is quite easy to be fooled....plus the greed factor is quite present.
Paul Franke profile picture
The S&P 500 has not had a DOWN calendar year since 2008. Does anyone remember what it's like to lose money in stocks? http://bit.ly/29XczId
Scott Linge profile picture
Yes Paul, I do. I was there in 1973-75 that was a grinding, destructive bear market with 6% core inflation!. And all the others since then, ugh.
bjjacohen profile picture
Good reminder of what we should already know. And you're right. We don't always realize when we're playing the Greater Fool Game. And an expensive game it is!
I'll choose Warren Buffett's recommended strategy of "buy and hold' -- whom the author repeatedly keeps calling the "greater fool" approach -- over the market timing strategy the author recommends, any day of the year. If Lance Roberts wants to volunteer the data of his investment returns - for the first time ever -- we can compare the two approaches to decide which is better. But I have a sneaking hunch the only response we will continue to hear to that challenge is the sound of crickets. If one keeps throwing the same stones every week, you eventually need to back up your own claims if you desire any semblance of real credibility.
You're right, if you don't understand what Lance is saying you should go with the buy and hold strategy.
If you truly believe that Warren Buffett, who advises buy and hold and against market timing, does so from a "lack of understanding," I would think again. Again, show me a better way (using actual performance numbers and data) and maybe I can somehow begin to view Warren Buffett is a "greater fool." Just because a strategy ("buy and hold") is simpler makes does not make it inferior to more complicated one, or that its adherents follow it due to an inability to understand other strategies. I think that's where you're missing the boat.
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