myfinancialmarket.com

To Start, here are the Numbers for Feb 17, 2009:

Dow is down -3.79% for the day, -13.97% year-to-date, and this is on top of the -33.8% loss in 2008. It’s been plain Ugly!!

When I started writing this Financial Blog, my thought was one of education into the stock and mutual fund investments for those reading the various postings. Perhaps a few suggestions on Portfolio Diversification, along with some fund suggestions would come forward, that was the original plan — how times have changed! Most everyone has either an IRA, 401K, or 403B type investment - perhaps in addition to a basic brokerage account, thus the desire to know how to make these investments work best for themselves. I think this Blog is still a work in progress, hopefully to continue to help many of you with your own investment decisions.

Here is a little background on the investment philosophy I have been mostly approaching for the stock market. Having studied very long term overall stock and mutual fund performances going back to the 1970’s (not far enough it seems in today’s environment) I decided to become what is called a “Swing Trader” an investor who buys for short term trades (but not day trading). Later I decided to hold a group of funds for at least one year, sort of a “Buy and Hold” process, yet not a a major part of my portfolio. This was sort of hedging your bets as timing the markets can be good, yet there are times when this approach under performs. However with the direction of the markets over the last year being definitely down, I believe Market Timing has finally proven itself to be viable in spite of all the academic studies of the past that suggest otherwise. I think you will see my thread here as I am encouraging you (or your favorite financial advisor) to look at Allocations plan for your portfolio (in or out of the Market, or somewhere in between) as a minimum. If you are lucky, you have a sixth sense for this, if not, then finding a good advisor or developing the needed fundamental and technical kills will surely make a difference in the long run for your nest egg.

I want to eventually get into an Allocation approach that I like for investing, but first I’ll bring up a couple of daily comments I have received from the stock downloading service I receive from Telechart 2000, or TC2000 (http://www.tc2000.com/). They are an online service that provides a data base of stock and/or mutual fund pricing history plus tools for users to come up with their own, or else suggested inputs from subscribers including various trading algorithms.

The first TC2000 comment I will make was in The Worden Report (Wednesday, November 21,2007)

“The Primary Bear Is Here!

Who would have thought the Dow would plunge into a Primary Bear on the day before Thanksgiving (2007) (or any holiday for that matter). The Dow sliced through the level of its own closing low of August, coming to a halt in the mud-puddle about 62 points below the last support level. The SP-500, however, closed about ten points above the abyss, the traditional abode of evil spirits, and in so doing staved off the nebulous moniker, “bear market.” (The Nasdaq Brothers aren’t quite ready for such a big step.)”

Then, more recently, The Worden Report (Wednesday, February 4, 2009)

I , (the author, who is Don Worden) feel I should point out for the lazy guys out there, that if you had merely followed the Primary Trend on the Trend Table below (not displayed here), you would have turned bearish in October 2007 (note: he meant November), by continually following the Primary Trend Designations. You would still be out of the market with no diversions along the way. You could have gone fishing, if that is what you like to do. And you would still be out there–providing a shark didn’t get you.

Well, I suspect few investors (including myself) followed the Don Worden comment above (based on Dow Theory), thus we continue to hold various equity positions along with bonds and cash. The point here is this simple Allocation approach would, if followed, have saved most of us a lot of lost dollars along the investment trails.

I am not quite a fan of an all or nothing approach when it comes to long term investments (and for many investors there are tax issues that are of concern as well). One allocation approach to the TC2000 observation is to start removing yourself from the Market on a timely basis when long term indicators suggest so. This is because indicators tend to whipsaw or turn around just after you made a position adjustment. Thus perhaps selling 10% of your holdings each week or month while the primary trend is down would have been an appropriate approach here, with the intent to follow the long term signal, yet still having enough positions in the market to recover in case the sell signal was false. The converse is true too, that is to move back into equities when conditions of the market are more bullish. Quite often this approach is referred to as “Dollar Cost Averaging.” We cannot predict with a lot of accuracy just where the market is headed today, or any day. This is where dollar cost averaging comes in, that is to make small timely adjustments in case your assumption or estimate was wrong.

In the next posting I’ll begin to introduce a weekly or monthly allocation approach using 4 Market Indicators. To skip ahead a bit, this allocation approach has been out of the market since Sept16th of 2008. I am now mostly following this approach for trading Fidelity Mutual Funds and will begin to purchase new funds when this indicator begins to show positive.

Don

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