That's All I Can Stands, I Can't Stands No More!

Remember that familiar refrain? For those of us who are old enough you''ll certainly recognize that as Popeye's lament just before grabbing a can of Spinach which will empower him to dispose of his nemesis Bluto. Well, my response to what's been happening on the stock market is similar. I have moved all of my money out of mutual funds into money market funds. I have done this even though officially we won't know if the green arrow changes to red until the June 30 close. Please click on the image and I'll explain. Notice all the red down arrows from monthly peaks to monthly valley lows between April 2003 and November 2007. During this long term "green arrow" period the maximum monthly decline was only 5%. In November 2007 the long term arrow changed to red and correctly anticipated a bear market. Notice the maximum monthly declines between November 2007 and March 2009 were 15%, 10%, 30% and 19% respectively. Imagine the devastating effect on your account had you stayed in! Ok, now shift your focus to the far right. The S&P Index closed at 1064.88 on Friday, down 10% from the April 30 close. The last time the market declined this much from a peak was in January 2008. This came two months after the long term arrow changed red in November 2007.












So what does all this mean? Until now the long term methodology would have had us out of the market before the "larger than normal" corrections started occurring. As I mentioned last week all the elements of a long term trend change are still not present so the long term green arrow remains in effect. HOWEVER, our primary concern is ALWAYS capital preservation. There is a LOT of time remaining until the June 30 close. It is conceivable the market could decline much further between now and then. Remember the April 23 article in which I presented a table showing the percentage return needed in order to recover given percentage losses? Right now the S&P Index is down 10% from the April 30 high. This means that a return of 11% is all that is needed to recover that loss. The last thing I would like to see is a decline of 15% or more which would require much larger gains just to get back what was lost. It only makes sense to me to sit on the sidelines for now. In each Saturday post between now and the Wednesday, June 30 post I will make a determination as to whether or not it's safe to get back in mutual funds.

FOR YOUR EDUCATION...As I mentioned in last week's article I am nearing completion on research based on weekly and daily charts which may allow us to optimize the returns achieve using only the monthly charts. Also, some have asked whether there's a way for those who have IRA's to make returns superior to a money market fund during bear markets. As you may know 401-k plans don't offer such flexibility. But most IRA plans allow you to invest in ETF's (Exchange Traded Funds). There are bullish ETF's that will allow you to profit during market rallies and bearish ETF's that will allow you to profit during market declines. More on this in the weeks to come. Stay tuned and have a great weekend!