Shocking to me is the fact that the US remains one of the strongest markets in the world as of today, strong on a relative basis if not absolute. Despite the headlines and Euro risks the US markets continue to tread sideways. Either there is disbelief that Euro contagion risks will not suck us under and that the current decline in US earnings estimates will only be a shallow decline. Neither issue can be proven right now so my mantra of being defensive is still in place.
I’ve been using this minor market strength to add to defensive hedges (SDS) and slightly reduce market exposure. Charts remain broken with the SPX sharply below the 200 day moving average. I’m currently immersed in conducting research into the effects of using moving averages into our investment strategies.
This is not a good time for investors to act upon the urge to be contrary. While I’d love to be heavily invested in every portfolio, broken markets take time to heal. 2008 was a great example, while the crash occurred in the Fall it took six months for the 200 day m.a. to decline to a reasonable point, in addition the earnings were allowed to bottom and finally turn up.
There is no reason to fear bear markets when you take a proactive approach. For about 30 years I was almost exclusively a long-only investor. But getting kicked hard in 2008 was more than enough to turn me into a more flexible investor. When this bear finally expends itself there will be a major rally where returns will be stunning, but we must exercise one the hardest of disciplines: patience. Ugh.
Long SDS