A Dubious Anniversary

The markets started the week out on a sour note yesterday as they have for the past two Monday’s.

Some of our sell stops in the international arena were triggered and, barring a major rally today, the affected positions will be liquidated.

It was a bit of good news/bad news scenario. The good news was that the sell off happened on light volume (again), but the bad news was that we closed at the lows for the day as the above chart clearly indicates. This means that further weakness is likely.

A forecast from the World Bank that the global economy will contract by 2.9% this year vs. an earlier forecast of a more moderate 1.7% proved to be more than the markets could handle and south we went.

Our Trend Tracking Indexes (TTIs) slipped as well and are showing now the following positions:

Domestic TTI: +0.12%
International TTI: +6.60%
Hedge TTI: -0.94%

This means that we are within striking distance of a domestic sell signal. Before pulling the trigger, I want to make sure that the TTI clearly pierces the trend line to the downside. I will keep you informed via this blog, so stay tuned to any changes.

Today marks the one year anniversary of our last domestic Sell signal, which was effective 6/23/2008. Those who followed it were richly rewarded; those who didn’t suffered steep portfolio losses. One year later, the S&P; 500 is still down over 32% from the point of our sell signal and many portfolios are worse off.

At this very moment, it seems to me that the government induced stimulus rally has run out of steam, and we will need to wait to see if there are some positive news on the horizon that can pump some life into the fading indexes.

I won’t hold my breath, but I believe that a defensive posture, such as I advocate via our hedged positions, is in order—at least for the time being. If things get worse, we will be heading for the sidelines.

Again, my mode of operation is (and always has been) that I’d be rather safe than sorry. I suggest you do the same, if you handle your own portfolio.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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