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Stock Market Sitting On Fine Bull/Bear Line

Stock-Markets / Stock Markets 2011 Aug 05, 2011 - 01:27 PM GMT

By: Chris_Ciovacco

Stock-Markets

Best Financial Markets Analysis ArticleWe updated our similar markets study last night. The results are similar to the first pass. As mentioned in the July 18 video (see below), the slope of the S&P 500’s 200-day moving average remains a key differentiator between markets that should have been sold and markets that warranted a more balanced approach to risk management.


The current slope of the S&P 500’s 200-day is basically flat, telling us to reduce risk, but not to throw in the towel yet. If the slope of the 200-day turns down especially for more than a few days, we will reduce risk further.

The green arrows in the charts below show the midpoint of the similar historical periods as identified by the CCM Bull Market Sustainability Index (BMSI) and CCM 80-20 Correction Index (80-20 CI). Notice in 1998 the slope of the 200-day flattened out, but did not turn over in an obvious manner. Stocks recovered in 1998 and went on to make new highs.

In 1999, we had a similar situation; the slope of the 200-day flattened out, but did not turn over in an obvious manner. Stocks recovered in 1999 and went on to make new highs.

In 2000, the bear market began in earnest after the slope of the 200-day rolled over in a convincing manner.

The 2007-2009 bear market also ramped up its bearish bias when the slope of the 200-day turned negative.

As we mentioned in the video above, we do not feel 1984 is all that good a proxy for the current technical backdrop. However, when the slope of the 200-day turned up, it was a bullish signal.

Given the recent deterioration in the market’s risk-reward profile, we have reduced our mix of risk assets and more conservative assets to roughly 50%-50% depending on the needs and risk tolerance of the client. If the market can find its footing soon, we will maintain that mix for a time. If we see further deterioration, we will raise more cash. The risk portion of our portfolio is mainly comprised of the S&P 500 Index (SPY) and mid-caps (IJK). Our conservative portion is primarily made up of cash, bonds, gold (GLD), and silver (SLV). Our gold and silver represent a hedge against the possible further debasement of paper currencies. The Fed meets next Tuesday; we believe the odds are decent they will make some precious-metal-friendly comments.

By Chris Ciovacco
Ciovacco Capital Management

    Copyright (C) 2011 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

    Chris Ciovacco Archive

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