Sunday, February 10, 2019

Wall Street Wrap: Is a bear market resuming?

In following up on my article from earlier in the week about the weakness showing in the market, I update market action here in a new chart. While we only have two more days of data, note that a new high may be forming which is lower than the previous high. 

Note that on Friday, the rally in the market came in the last 15 minutes. Futures, which open this evening at 5 pm CST, may indicate which way the market will open on Monday morning. 

There would be nothing wrong in moving to cash at this point, especially if the market trends lower on Monday, Feb. 11. Or one could wait until the moving averages cross over. This would be the blue line crossing below the purple line. 

This type of market action going into a bear market has happened twice before: in 1987 and 2007. After the market losses about 20 percent, a short rally ensues, only to be followed by a resumption of the bear market. Note what happened in late 2007 and early 2008. While past market action cannot predict future market action, I would not be surprised if the market resumes a downward trend. (But I would also not be surprised if it went higher, either. Never be surprised, just observant). 

Note the short rally in early 2008 before the market drops. Look familiar? After the bear market in 2008, it took six years to regain all of its losses. 

Protect yourself. Be observant and ready to change your investments. Ask yourself: Can I wait six years for my portfolio to recover? Moving to cash, if you haven't already, may be the smart move. 

Don't fall prey to the myth that you can't time the market. While prediction is futile, you can adjust to go with the trends. You won't get the high or low, but you'll protect yourself from major losses. Most advisors and brokers at this point -- and have been for the last several months -- been coming on heavy with advice to stay the course. Diversify they say. Problem is that a market on a down trend will pull most everything with it...

In full disclosure, I am about 70 percent in cash and money markets. I own AT&T (telecommunications), Caterpillar (industrial), and HollyFontier Corp (energy refining). These three stocks constitute about 15 percent of my portfolio. I also own the following ETFs: AMLP (energy delivery), ERX (leveraged energy), SRET (real estate), and PFF (preferred stocks). These four also constitute about 15 percent of my portfolio. These investments are mostly dividend plays for the income stream. With dividends from my money markets (yield is currently about 2.4%), I collect about $650 per month in dividends on average. 

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