2009Nov6 Market Risk Rises
2009Nov6 Market Risk Rises
One of the main equity risk indicators we follow, the NYSE Bullish Percent, has recently reversed down. After spending seven out of the past eight months positive, this indicator now suggests a more cautionary stance. It is prudent to focus more on wealth preservation or defensive strategies with the mindset “we would rather give up opportunity than give up money”.
Defensive periods in the market are typically like navigating through rough seas, we must be vigilant and be ready to make course changes to arrive safely at our destination. This requires a disciplined approach that is carried out with confidence and courage. It is paramount to deal with what is happening, what we think should be happening is irrelevant, “what is, is”.
When things look impossibly complicated in the markets and cross currents seem to have cross currents of their own it can be hard to keep a true heading. This is why we rely on a simple, logical, organized way of measuring the imbalances between supply and demand in the market place, Relative Strength. Relative Strength allows us to evaluate assets against each other and choose the ones with the best chance to positively impact your portfolio. It is driven by the irrefutable law of supply and demand, more demand, prices are increasing, more supply, prices are decreasing.
Our role is to objectively weigh the positives and negatives. Success in investing isn't derived from knowing where the market will go, because no one does. Rather it is from simply knowing which way the prevailing winds are blowing and aligning our sails accordingly. During the 80's and 90's, sailing through the markets was relatively easy because of the persistent direction of stock prices.
After the turn of the century, winds and tides have made progress more difficult. It is much like rowing when the winds have died down or turned against you. In the current market our efforts are focused on using these conditions to your advantage. We would rather row now than wait for the wind to turn in our direction. Over time that can have a massive impact on our progress.
With our indicators suggesting a more cautionary approach, reviewing the positions in your portfolio is in order to determine an appropriate course of action to keep you headed in the right direction. These actions may include things like selling weak stocks or simply raising stop loss points so profitable positions remain profitable.
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