2010 was entered with optimism for the market to continue the recovery which started in March of 2009. This optimism was short lived as the market reversed downward after reaching a high for the year on Jan. 19. Over the next 13 trading days the S&P 500 index lost almost 10% of its value.
During this downturn my key indicators showed early warning signs for a sustained downtrend. This signaled a defensive investing strategy which was implemented by tightening stop loss orders and selling selected mutual funds that crossed below critical support levels. International Exchange Traded Funds and International Mutual Funds were liquidated since this equity class's relative strength reversed down after leading the market up since march of 2009.
This past week the major indexes all posted their first weekly gain in 5 weeks. Although this is a positive sign it is too early to switch from a defensive to an offensive investing strategy. New positions will not have market momentum behind them to improve their chances for success. Therefore, any new trades must be accompanied with tight stops to limit risk.
Holders of mutual funds in 401(k) retirement plans are best served by keeping the money from recent sales in a Money Market Fund. If and when the indicators signal an offensive strategy, the money will be used to invest in the available mutual funds that are leading the market up.
Saturday, February 13, 2010
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