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All Indicators Turn Negative in Down Markets

March 5, 2007 by Thomas Mullooly

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.

Ouch.

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
Our Only Business Is Fee-Only Investment Advice
www.mullooly.net
support@mullooly.net

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Filed Under: Asset Management Tagged With: ETF's, S&P 500, short term indicators

About Thomas Mullooly

Thomas Mullooly is owner and founder of Mullooly Asset Management, Inc. In 2002 Tom opened Mullooly Asset Management, a fee-only investment advisory firm. As an investment advisor, and not a broker, Tom works strictly for his clients. With the help of point and figure charting, Tom builds a realistic game plan for clients.

1971 State Route 34, Suite 102
Wall Township, NJ 07719

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The information on this website and blog do not involve the rendering of personalized investment advice. A professional advisor should be consulted before implementing any of the options presented. None of the content contained in this website should be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

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