May 4th, 2010
It was so close today. The market found support exactly at the 50-DMA as identified in the chart of just a couple of days ago;
If there’s a break of that support tomorrow, my strategy calls for a sale of about 5-10% of the total portfolio in an effort to become somewhat more risk averse.
The logical question is why that small amount and why not some other level like 25% or 50%. It’s because the only thing we’re sure about is that the market is bound to surprise us. With all the pessimism abounding today from the foreign debt crises and the environmental and economic effects of the Gulf oil spill, any good news from nearly any corner might just provide the spark for a sharp bounce. That’s why I let the market itself be my guide and take from it the cues as to it’s collective wisdom.
It’s been one of the toughest market recoveries I’ve ever experienced so what to do and how to do it shouldn’t be new to us by now. We’ve had lots of frustrating practice before with the correction this past January-February and the churning within the narrow range of last September-October. It’s unpleasant gut-churning and each time causes some more participants to jump ship and vow never to return.
We wish we had an easy bull market but perhaps it’s so difficult because we fell so deeply and, since the recovery began, have always been looking out for that elusive 10-20% correction which just never came. That’s either a testament to the market’s strength or a warning of how deep the correction will be when it does finally arrive.
By the way, subscribers to Instant Alerts see how I navigate these turbulent waters with my own personal portfolio almost immediately after I do it.