June 6th, 2008
The music stopped and the market fell on its ass. For the last several of days, I’ve written about how the index kissed the 60-day average and bounced. But today, as well know, it didn’t.
Its a perfect time to hit you with my favorite quote of Benjamin F. King: “50% of a stock’s price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own.”(Market and Industry Factors in Stock Price Behaviour, Journal of Business, January 1966).
I found this quote while research my Market Timing Indicator (MTI) for the book I’m writing. After today’s 3.09% decline, the Index finally fell below both the 60- and 90-day moving averages driving the MTI into an all-cash position. Will this move turn out to be a mirror image of the May 19 one-day move above the 180-day move?
It reminds me of when I warned on April 22 in “Beware Suckers’ Rally“, that the move above the upper boundary of the channel the market out of which the Market was attempting to breakout might in fact be a trap. The market is now just below the April 22 close. I repeated the cautionary note when I wrote “Dusting Off Bear Market Crash Call: Next 2% is Crucial” on June 2, just this past Monday. But the only think that counts is where we’re going from here and what should we do.
I’d immediately hedge (I finally did sell some new or poorly performing stocks and add 10% cash) put some hedges on. The vehicles I’ve been playing are:
- SDS – ProShares UltraShort S&P 500
- TWM – ProShares UltraShort Russell 2000
Watch this channel develop and, if the price approaches 180, I’d jump in.