All Indicators Turn Negative in Down Markets

by | Mar 5, 2007 | Asset Management

All of the short term AND long-term indicators I follow have now turned negative.

All of ’em.  Including the S&P 500.

What’s that mean?  Well, the S&P 500 Index is simply the 500 largest stocks in the US.

And, basically, 70% of all money in mutual funds sits in the same 500 stocks.

That’s a lot of money.

Your money.
Your kid’s money.
Your retirement money.

Now, when you get a picture (or chart?) of what direction these 500 stocks are heading, you get a pretty good idea of what’s unfolding right now in the market.

It’s like watching a school of fish changing direction.

It’s not gradual.
And it doesn’t need a reason to happen, either.
It just…goes…

Two months is about average length of time the defense carries the ball.  Some defensive times have been pain-free.  And some — like 2001 and 2002 — saw drops of 20% — in a few weeks.


It’s a little like stubbing your toe in the dark, on the corner of the bed.

It’s dark.  It’s unexpected.  And it hurts.

Since 2002, the market hasn’t seen a 10% correction.

We might be overdue. I hope I’m wrong.  I could be.
Good thing I am not in the “predicting business” like the knuckleheads on TV.

We have tools at our disposal that can make money in down markets.

I’ve been buying “short” and “ultra-short” ETF’s the past few days.  These are funds that go UP when the market, index or sector it follows goes DOWN.
In the case of “ultra-short” ETF’s, that is often 150% or 200% of the move. Meaning, if a sector drops 8%, the “ultra-short” can go up about 15-16%.

Not for the faint of heart. Definitely NOT for the faint of heart.

I’ve been keeping an eye on the following:

MZZ = Ultra Short Mid Cap 400

QID = Ultra Short QQQ

REW = Ultra Short Technology

SDD = Ultra Short Small Cap 600

SMN = Ultra Short Basic Materials

SRS = Ultra Short Real Estate

TWM = Ultra Short Russell 2000

Remember, it’s great when you are right.  But in this case, if the index you are betting against goes UP 5%, you can lose 10%.  Fast.  So, please be warned, these are tools that CAN work against you.  Badly.

TomThomas Mullooly
Mullooly Asset Management LLC
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