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S&P Drops to 50-Day Moving Average


Just a quick update to let you know that the move lower I wrote about several days ago has happened and we are sitting right above the 50-day moving average.

You might recall that I told you we had sell stops set to protect gains in holdings because the market was over-valued in relation to its 200-day moving average. It had moved above the outer boundary that represented a 10% band (the thin blue line) above the 200-day line (the bold green line).

Well, as it has always historically done, it fell back consolidating the move and charlie executed about 1/2 of our targeted sales a few percent ago. So our plan worked.

The next step: we have also begun to add back positions that have sold off and we will continue to add as the market either bottoms around the 50-day moving average line (the bold red line you see on the chart) or add even more if it drops below and starts heading to the 200-day moving average line.

This is the strategy we employed in the May/June selloff, and it allowed us to outperform the market by 150bps during July on average as a result of our risk management strategies.

A lot of people that you listen to on TV have been caught unaware that the market was set to pull back a bit – sort of like a bomb was dropped on them – and today they are back peddling their comments of the past three weeks or so. Its pretty entertaining, actually.

I am off to a meeting, but wanted to give you a short update on the market and our activities. Email me with any questions you might have.

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