Tuesday, September 30, 2008

Market Roadmap

I know that I am rehashing things, but it is the start of a new quarter, so I wanted to review my Roadmap. This is the chart of the Standard & Poors 500 Index (S&P 500). The S&P 500 ($SPX) is a composite which tracks the performance of the 500 largest companies which trade on US Stock exchanges. As this index goes, so goes the economy. It is a Leading Economic Indicator.

I consider this chart my Bull Market / Bear Market Roadmap, because it makes it easy to see whether we are in a Bull Market and you should be focusing on making money or in a Bear Market and you should be focusing on protecting your money.

Very simply, if the bars are above the Red and Blue Lines, then you should be buying pullbacks into the Red and Blue Lines. If the bars are below the Red and Blue lines, then you should be shorting bounces into the Red and Blue Lines. Pretty simple, huh?

We are now below the lines, so you should not be holding stocks. If you want to try and make money, then you should be shorting rallies into the lines. If you don’t want to risk money, then sit in cash and wait for the next economic expansion.


In January 2008, I alerted clients that the markets had broken down and it was time to get defensive. Those who were late in reacting were advised to sell the first bounce into the Red and Blue Lines.

I made it very clear on a number of occasions this year that I think we are replaying the 2000-2003 Bear Market. This is the second crash since the late 2007 top. The 2000-2003 Bear Market had four crashes. I am not sure if we have two crashes or ten in this Bear Market. But I do know that I will be ready to buy when the Bear Market ends.

I also know that I have avoided the majority of the carnage of 2008. Even with today’s monster rally, the S&P 500 was down 9.21% for the month of September! Yikes!!

In my opinion, you had better know how to play offense AND defense, or you should find somebody who can do it for you.

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