June 12th, 2008

Sell on Rallies

I’ve been concerned about the market ever since the S&P 500 Index crossed below the 300-day moving average, a trigger that my Market Timing Indicator (MTI) flashes as an “all-cash” signals. Yesterday’s 1.69% decline only adds to the concern.

One of the important aspects of an indicator like the MTI is that it tempers emotions. Watching the signals it flashes and waiting for them to turn from bullish to bearish (“all-in” or “all-out”) or vice versa prevents you from being carried away by big single-day moves or reversals.

We are now clearly in bear market mode. I’m being overly cautious and using up days to selectively unload positions that either were recently put on or those that haven’t immediately performed according to expectations.

I’ve also begun to put some hedges on having bought some of the Ultrashort and precious metals ETFs; I still have oil, coal and food stocks.

The Index is nearly back to where it was early in 2006 and, even further back to the levels of mid-1999. That’s a nine, going on 10, year dry spell. Sure, the market nearly doubled between 2003 and 2007 but now it’s on its way back down. I’ve been making comparisons between the 2000-2003 tech bubble crash with the current market since December 2007 and I regret having to say that it doesn’t look like it’s going to improve any time soon.

Tomorrow the CPI for May is going to be announced and indications are that it’s going to show an upward revision to last month’s unbelievable report (remember, it showed gas prices going down 2% when were all paying a lot more at the pump due to what they called were “seasonal adjustments”) and a big jump for the month of June. That will only add fuel to the Fed’s fire and further the expectations for rate hikes soon. Those may be held off until after the election but when they do come they may be as aggressive on the up side as they were recently on the down side.

I’m going to take every to sell on rallies rather then buying on the dips.

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