Londoner has asked twice about this, apologies.
The market below its 200 DMA signals a problem with demand. The short answer is it is time to buy when the market goes above its 200 DMA. Too bad it is not that simple.
I added some Walgreen in the middle of this decline at $42.24-ish. It is up now but traded with a $40 handle about ten minutes (hyperbole) after I bought it. I have mentioned my intention to add a high yielding food name as well.
Those are the types of things that will work well in this type of environment. Plus as other things were going up (energy and emerging markets) my staples weight declined due to those sectors lagging. I think it is a decent time to add a name or two from these areas.
In addition to caring about the 200 DMA I use a little bit of gut instinct too. Since we have had a couple of false positives with the 200 DMA in the last couple of years and also because I could be wrong about any of this I don't feel the need to move very fast. The history of bear markets is they start slowly and regardless of anyone's opinion we don't yet know if this is a bear market.
At some point this will end, whatever it is, and the market will go back above its 200 DMA and I will add slowly as that happens. Again it could go above for a week and then goes back below so there is no hurry.
I can say there is no hurry because I will never have zero equity exposure. Bounces off the bottom tend to be big and fast. I don't mind lagging but missing entirely is a bad mistake.
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8 comments:
Pretty good piece someone else wrote:
http://www.smartmoney.com/commonsense/index.cfm?story=20060620
Thanks for your comments - and the link. Interesting stuff - I agree, a market above the 200d MA feels a happier and less neglected place, limiting the danger of catching the falling knife (but, I guess, the opportunity of finding an outrageous bargain - that's where the gut comes in too, no?). Your "no hurry" approach to responding to breaks of the average also sounds reasonable - for what it's worth, our FTSE 100 crept above its 200d MA yesterday... making this I think the fifth time it's done so in the last month! Slaves to that indicator would have been nicely whipsawed.
Slave?
That word captures the difference between blind and mindless devotion and disciplined faith and why I don't go all in and all out.
hey Roger Rabbit, Teva looks to have bottomed here.
Institutionals are bidding it back up. $40 within 6 months
Roger - hope it didn't read like I meant you: I'm agreeing with your approach... all I mean is that if one HAD slavishly followed the breach of the 200d MA, one would have been whipsawed... which your approach would clearly avoid.
Thanks as ever for the posts!
Roger,
As you know, as I write on my blog I let my own portfolio tell me "when" to buy. The "what" to buy is my own peculiar screening strategy.
If we limit our losses with small losses of 8%, then it is incumbent on us to use some other indicator for a purchase than a sale on a loss or we will be on a slippery slope of compounding losses during a market decline.
With my portfolio at a maximum of 25 positions, I plan on letting it drop to 6 if needed. I only add new positions if I am under 25 positions (or at my minimum of 6 and one is sold) if I sell a stock on "good news" which for me is a partial sale at a gain. I use my own portfolio as a barometer for the entire market.
So far it appears to be working.
Not buying below the 200d MA means you miss buying opportunities during bull markets. Of course it will miss the bear markets, which is the goal of this plan.
Personally I do not like it. It is to prone to a lot of small losses and also a number of missed buying opportunities. Other than buy and hold, no I do not have a better fixed rule so I should not be to critical.
But personally I think people need to find a better way to identify bear markets and avoid fixed rules (they are too costly). I find this requires a lot of good judgment. You do not even need to be right all the time. You only need to identify a few sell signals a decade to do well.
nothing wrong with a different mouse trap.
i have said over and over I use what is right for me. the important thing is being disciplined to what ever you use to protect capital.
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