So this is the chart I've been studying this morning...For a long time I have been calling for one more scare the hell out of them decline. This may or may not turn out to be it but right here the S&P 500 is only down 11%.
That may not be down a little to you but it is not down a lot either. Somehow people tend to forget what it actually feels like as the market is going down which must be some sort of behavioral thing but if you have a predefined strategy like I write about repeatedly then you are not left trying to interpret this sort of action.
We take defensive action if it looks like the S&P 500 will close below its 200 DMA for a second day, period. Today might be day one or not, we'll see, but it does not matter. Toward the end of a second day we will take defensive action; a plan spelled out years ago and then stuck to along the way.
Having a predefined plan removes emotion from the equation which I believe is the best way to navigate through.
8 comments:
Hi ROger:
Well it looks like a "puke moment".
Just wondering how you define "defensive action". Do you try to reduce your portfolio beta's to a certain level?If so, do you selll anything or just buy SDS?
Thanks.
Out of curiosity how much discretion do you give yourself in applying defensive action? Does your plan generally say "get market neutral", or just "reduce equity exposure by some discretionary amount"?
it is discretionary
ROger: Thanks for sharing
Roger, SDS softened the drop by about 25%. It makes for a better night's sleep. i like the compounding effect as well. Thanks for sharing this strategy. I've been watching for an entry point into some of the South American stocks and began to follow Vale and Ambev the past few weeks. Is the rapid decline in Vale a fear of deflation or there something more going on? After all, for China to slow growth to 6-8% is not chicken feed. And all the cars and infrastructure for China will still require iron and nickel for steel,so why the panic? Your thoughts?
Sam
well the FT ran a post about the Aussie mining tax being copied by Brazil, Chile and a couple of others additionally it is a good bet that long term fundamentals are not the most important drivers in the immediate term.
Eclectica letter has some commentary regarding China's commodity suppliers:
http://www.zerohedge.com/article/deep-thoughts-hugh-hendry-eclectica-fund-may-2010-manager-commentary
Thanks for the link, Mathew. Very informatve.Sanford
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