About a week ago as you probably are aware the 50 DMA of the S&P 500 crossed below the 200 DMA. While the importance of this has been debated, if the market is on its way to down a lot then the crossover serves as a confirmation of the 200 DMA breach from a couple of weeks ago.As of Friday's close Stockcharts.com has the 50 DMA at 1100.30 and the 200 DMA at 1111.58.
We sold Walgreen (WAG) as a result of the crossover.
I mentioned to a client that during the last go around the small position in SDS grew to hedge a much larger portion of the portfolio as the market kept going down. That combined with only a few sales went a long way to achieving the objective which as stated many times before is to avoid the brunt of down a lot.
Down a lot does not result every time the S&P 500 goes below its 200 DMA but for every down a lot there was a breach early on. The current breach will result in down a lot or it won't. As this is unknowable ahead of time the ultimate knowledge of whether another large decline is coming or not means this trade was either the correct thing to do from the top down or it was an error on the side of caution.
One other related point is, and this is a repeat theme, that the panic is over and at this point for now I think is more about the reckoning of all of the problems, excesses and so on. To the extent the newness and unknown are less than before then I think that argues for any subsequent decline to be less than going back down to SPX 666, which was the March 2009 low, regardless of whether it scares the hell out of anyone or not.
6 comments:
Roger, I certainly respect your judgment and methodology; however, I am puzzled as to why you chose the particular stock, WAG, to sell. WAG is a dividend paying large-cap consumer staple with a history of increasing the dividend. It would seem that WAG is the kind of stock one would want to retain during a market downturn?
Thanks,
JCarr
looking forward, I am less confident in WAG's fundamental story than when I bought it. I believe this has been manifested in the price action. it became, IMO, the weakest link recently.
Thank you for the response,
JCarr
This seems to highlight why advisors are in such a tough spot in volatile markets --- you have to avoid 'down a lot' to do your fiduciary duty -- and yet you run risk of just locking in underperformance with 'coin-flip' things -- like using the 200-day strategy.
your comment might make a sense for people who are stupid enough to live 90 days at a time
I like Roger's methodolgy, which I also tend to adhere to. I also sold some small positions 2 weeks ago, unfortunately the market turned up again. But if the market turns down again, I will sell-off some more positions. Since no one can predict what will happen, making these small changes is probably the only way to not be down alot
Post a Comment