One of the most frequent questions I have received during the past few weeks, as sell stops got triggered, while our Trend Tracking Indexes (TTIs) slipped into bear market territory, was where to put the proceeds from the sales.
Sure, some investors remain in limited PRPFX positions, but other holdings were liquidated, and the monies are looking for a new home.
Whenever market behavior is as extreme as we’ve witnessed during the recent past, it’s a sign that we have or are about to reverse the bullish trend of the past 2 years as the bears slowly but surely gaining the upper hand.
As you have witnessed, it was and still is a brutal tug-of-war between the bulls and the bears, however, the jury is still out as to who will be the ultimate winner. From my mat, it looks to be the bears, as technical weakness has set in, while most fundamentals point to a global economic slowdown for all the reasons that I have previously posted about.
If you follow trends in the market place, and you get stopped out, or our TTIs drop below the long-term trend line and into bear market territory, you want to move your proceeds first into a money market fund.
At that very moment, the existing bullish trend has become questionable, and many asset classes are declining as uncertainty reins supreme. At this time, you should be looking for safety, and not another means to try to grow your capital, while facing a possible market meltdown. Your vision needs to shift from growth to preservation!
If you don’t, you may find out that Mr. Market can easily extract a large tuition from you for conveying this lesson, while I am passing it on to you for free.
Safety means avoiding market risk as much as you can, while you evaluate the trends and in general stand in awe of how fast the major indexes can move to the downside. Just during the first 25 days of this month, we’ve seen the S&P 500 getting spanked at the tune of -10.29%.
Money markets in general will fulfill this need of safety without market risk. Another option for you might be the T-Bill ETF (BIL), which will provide not much of a return but may give you the safety you are looking for until new opportunities present themselves. With an average daily volume of over $55 million, it’s liquid enough for most investors.
If you are still stuck on the idea widely presented in the main stream press that being out of the market may cause you to miss a good chunk of the next bull market, please read Downside Portfolio Protection again for a more detailed explanation as to why avoiding a bear market is far more important than participating in every up move the market throws at you.
Disclosure: No holdings