With the Dow now having lost some 560 points over the past five trading sessions, concern about a slowing economy is catching up with the markets. I have touched on the apparent “disconnect” from a rallying market to the ever worsening Subprime/crisis before, just maybe some reality has finally sunk in.
While the “R” word (as in Recession) has now made it to front page news, at least a short-term trend reversal can be seen on our charts representing the domestic and international Trend Tracking Indexes (TTIs). We continue to be in a Sell mode for broadly diversified international equity funds/ETFs (since 11/13/07). As of yesterday, that indicator has dropped below its long term trend line by -3.60%.
Weakness has also spread to the domestic TTI, which still remains above its long-term trend line by +3.12%. Technically, this still constitutes a “buy” mode; however, I will not add any holdings at this time due to the possibility of more downside activity and the subsequent potential move into bear market territory. I suggest you do the same.
The markets continue to display great uncertainly and it pays to be conservative and only hold those funds/ETFs, which have not violated their sell stop trigger points. With a little more slippage to the downside, we could find ourselves in a 100% cash position very soon.