This week’s downside market action will make many investors feel like they are chomping on a cold turkey for Thanksgiving. The culprits have been the same and diversification, as so many times during recent corrections, hasn’t meant a thing. As I have repeatedly written, markets are so intertwined that the only true safe play will be on the sidelines in money market.
Oil prices approaching $100/bbl, continued housing troubles, along with new daily stories about the Subprime fallout and credit problems are not giving this market any support. Yesterday, after the markets had closed, another blow came when the editors of the Dow Theory newsletters moved to the bearish camp.
Why is that important? One reason is that many investors pay attention to it. MarketWatch had a feature story called “The Dow Theory Says Sell.” Their 70-year record shows that it beat Buy-and-Hold by an annual average of 4.4 percentage points per year.
While our domestic Trend Tracking Index (TTI) still remains +3.15% above its long-term trend line, and therefore in Buy mode, we have liquidated most of our positions as they triggered their 7% sell stop points. By the time the TTI actually crosses to the downside, the remaining holdings will have been sold.