It’s been exactly 7 months, since our domestic Trend Tracking Index (TTI) signaled a sell on 6/23/08 to move out of domestic equity funds/ETFs and into money market.
Since that day, a lot has happened and, unfortunately, those investors without a clear exit strategy saw a large portion of their portfolios destroyed in record time. Despite vicious rally attempts, most portfolios are still showing steep losses which may take many years of quality investing to make up.
The chart shows an enlarged portion of our Domestic TTI demonstrating the quick and devastating breakdown in the financial markets. Let’s take a look at how this will help us eventually re-enter at much lower prices than we exited.
On 6/23/08, the trend line (red) was crossed to the downside and its value stood at 47.10 (#1). As of yesterday, the trend line had inched down to 43.15 (#2), which is a drop of -8.39%.
At the same time, the TTI price line (green) made its yearly low during the week of 11/17/08 at 36.38 (#3). From that point, the price recovered and has now gained +5.69% to close at 38.45 (#4) as of yesterday.
The bottom line is that as long as prices are continue to hover around the levels of the past 3 months or so, the Trend line will descent faster than the price line will rise. In other words, the longer it takes for the markets to turn around, the lower the trend line will sink before meeting the rising price line and generating a new domestic Buy signal. This will enable us to re-enter closer to a potential bottom, which is what every investor is clamoring to do.
With the benefit of hindsight, we now know that the wild bounces and sharp drops after the November bottom have certainly helped us to avoid several whip-saw signals.
As I have mentioned before, this market environment rewards those with patience and the ability to wait for the right moment to re-deploy investment capital. Try not to focus too much on short-term swings but focus on the big picture along with a plan to be disciplined in your decision making. In this post bubble era, it’s the only way to survive with your portfolio intact.