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 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.
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.