Market Wrap - week ending 6/28/2013

Below is a client email alert that was sent earlier today ...

A quick update on your Resnn portfolio …

CURRENT MARKET EXPOSURE: 0%

CASH POSITION: 100%

Last week’s aggressive continuation of the drop in prices that started in late May finally found a short-term bottom on Monday of this week.  From Tuesday on, the market has risen and more importantly … ‘calmed down’. 

As I mentioned in our last message (from last week), panic had set in and when that occurs the market tends to drop very quickly and aggressively.  Usually during these panic ‘sessions’ the best thing to do is to sit on the side lines and wait for the masses to calm down. 

Trying to guess the bottom is a fool’s activity, and in fact in the trading world, a famous saying is “don’t try to catch a falling knife”.  Instead of trying to guess the bottom, we prefer to protect our investment and watch the action to see if the selling is subsiding and a calm is starting to occur. 

This week we started to see that calming effect as the selling finally subsided on Monday and we had a nice rise Tuesday, Wednesday and Thursday.  The week has been fairly productive in this regard.

We are still fully in cash at this point, the market’s decline from late May is very much intact at this point and although the market action is looking better this week, more time needs to occur before we will be willing to risk assets. 

As I have mentioned previously, when markets decline, waiting and watching the first few rally attempts is very telling as to the future direction of the market, and this week’s rally attempt has been productive but not convincing as of yet.  In fact, the data we analyze is still pointing to more downside.

For now, we wait and watch on the sidelines focusing on protection vs. growth.

Hope your weekend is peaceful

Protection

Below is a client email alert that was sent earlier today ...

Good afternoon.  In light of today’s market action, I wanted to send you a quick note allay any concerns you may have.  I will write a brief note below, but wanted to let you know that we are fully in cash and have been for roughly a week now.  So if the market continues to tumble, take comfort in knowing that your money is safe.

I don’t know how closely you follow the stock market’s daily action, but I'm certain you will hear about it on the news tonight.    Today’s market action was abysmal closing with roughly a 2.5% loss for the day, combined with yesterday’s 1.2%+ loss.

When market’s fall, they fall fast because fear is a greater emotion than greed … and fear creates panic … which is what we are seeing today.

What is most interesting today is how there literally is no safe place (besides cash) for your investing dollars. 

intermediate term bonds are down around 1.8% for the week (1% loss today alone)

International Markets are all down between 2% and 4% as well (china -2.77%, Germany -3.28%, France -3.66%, Hong Kong -2.88%, Italy -3.09%

Gold even made a 2.5 year low … down over 5%

As you know, on June 5^th I sent an email (written below) that we were taking defensive action and slowly moving out of the market.  This process has continued and we were fully out of the market, 100% in the safety of cash on 6/13/13 (exactly one week ago).

In my previous email I wrote about the importance of the next rally attempt to identify the strength or lack thereof in the market’s internals.  The key question a rebound rally attempts to answer is … are people looking at this short term dip as a buying opportunity (buying stocks cheaper than they were a week ago), OR are they staying out of the market and not buying anything (implying a much more aggressive drop is forthcoming).  In this case, we have had two relatively pathetic rally attempts in June, culminating obviously in what we see today.

In any case, as always I am watching our investments very closely and letting the market data guide our decision process.  If things settle down, we could be back in the market as early as next week, but we will only do so if the market is truly flashing healthy signals.  As you know, I only two rules at Resnn … 1) Always, always, always minimize risk, preserving your investment is the most important and 2) let’s make money. 

Protection of your investments will always be my number one priority.

Please feel free to call me to discuss any financial matters … my door is always open.

Hope you have a wonderful weekend … sleep well knowing that we have your investment safe.

Defensive Action

Below is a client email alert that was sent earlier today ...

I wanted to send you a quick ‘status’ update just in case you have not logged into your Resnn account recently.  In light of the market’s recent weakness, we have been taking a very cautious, defensive approach.  Early last week we exited margin (for our clients that choose to use margin), and we moved 25% of all our accounts to a cash position (leaving 75% invested in the market).  Today we increased our cash holding to 45% cash (55% invested in the market).

Raising cash in light of the volatility we are seeing is exactly what the model is designed to do.  Protecting our original investment is paramount to trying to profit in volatile markets, and this is exactly what we are doing … protection is key.

The market is due for a bounce (up) and the strength of that bounce will be very telling as to which way we go next.  I am watching our client portfolios very closely and letting the data lead the decision process.  The model is acting as it should, focusing on protection at this point.

If you have any questions, please feel free to call or email me, otherwise … I just wanted to let you know that we have moved from a profit motive to a protective one.

I will send you more updates as the market gives us more clues as to the longer term direction of the market.