Author: Brad Pappas, Rocky Mountain Humane Investing
Covestor model: RHMI Evergreen
Disclosure: Long SDS
Shocking to me is the fact that as of early September the U.S. remains one of the strongest markets in the world – strong on a relative basis, if not absolute. Despite the headlines and Euro risks, U.S. markets continue to tread sideways. This may be due to disbelief that Euro contagion risks will suck us under, and belief that the current decline in U.S. earnings estimates will only be a shallow decline. Neither issue can be proven right now, so my mantra of being defensive is still in place.
I’ve been using this minor market strength to add to defensive hedges (SDS) and slightly reduce market exposure. Charts remain broken, with the S&P 500 sharply below its 200 day moving average as of 9/14/11. I’m currently immersed in conducting research into the effects of using moving averages into our investment strategies.
This is not a good time for investors to act upon a contrarian urge. While I’d love to be heavily invested in every portfolio, broken markets take time to heal. 2008 was a great example. While the crash occurred in the fall, it took about another half year for the 200 day moving average to decline to a reasonable point. In addition, earnings were allowed to bottom then finally turn up.
There is no reason to fear bear markets when you take a proactive approach. It’s important to be flexible, using shorts when appropriate. When this bear finally expends itself there will likely be a major rally, but in the meantime we must exercise one the hardest of disciplines: patience. Ugh.
