How did I do? And, what now?

Now that I've reduced my equity exposure - specifically from approximately 90% to 45% - I wanted to reflect on what just happened and make some bold predictions about what could happen.

I'm pleased that my prediction from a year ago (specifically on 5/26/2018) that the market might peak in May of 2019 looks like it might turn out to be correct -- only time will tell if this month's high proves to be a medium or long-term top.  I'm also pleased that my indicator kept me in the market since August of 2016 when I wrote in my blog that I was "all in."  It was at that time that I increased my equity exposure from 50% to about 90%.  The S&P gained 27% from that time until today.  Currently, my 45% equity exposure is comprised of about 30 high dividend-growth stocks.

I wouldn't be surprised if the market attempts to rally at this point -- specifically, it might try to bounce off the 200 day moving average; it might try to fill the "gap down" at 2850; and it might try to test the 50 day moving average at 2870.  The market never moves in a straight line and it wouldn't disappoint me if this happens.  In fact, if it does AND IF my macro indicator continues to go down AND IF a RSI negative divergence forms, I might reduce my equity exposure further by shorting the market.  More on this possibility in upcoming blog posts.

As far as my next bold prediction, I believe that a negative bias might be in force for as much as 1 year (for as long as my indicator continues to go down).  As I mentioned in my prior post, identifying market bottoms are usually harder than tops.  I think patience will be rewarded and I'm looking forward to buying attractive tech stocks for the "alpha" component of my portfolio and re-buying dividend stocks at depressed levels to increase my portfolio's yield on cost.

Stay tuned.....

Executed Sell Strategy

At 12 noon, after watching the market float around my sell target of S&P 500 2759.18, I sold my exposure to the S&P 500 and all tech stocks.  I did this (as planned) in advance of updating my macro indicator because the data feed necessary for computing the indicator wouldn't be available until 12:30 and I chose to mitigate my portfolio risk earlier than later.

My macro indicator declined to -28.  Thus, I executed part 2 of my strategy and sold profits exceeding 10% in my dividend stocks at 12:32PM.

Higher volatility may call for early action

Because of the heightened volatility, it's possible that my confirming indicator will trigger before I have an opportunity to update my macro indicator on Friday (at 12:30 Pacific Time).  I believe that my macro indicator will decrease further and there's a high likelihood that it will fall to -20 or lower.  Therefore, I'm prepared to do the following BEFORE I get a macro indicator update:

If the S&P 500 breaks 2759.18 to the downside, I will sell "Alpha" -- specifically, my 20% exposure to the S&P 500 index and all high-beta (tech stocks). 

If my macro indicator does fall to -20 or below on Friday, I will execute the second part of my strategy and sell PROFITS (only) of any dividend stock which show paper profits of greater than 10%.  Based on my portfolio analysis last week, this sell strategy will leave me with an equity exposure in dividend stocks of approximately 50%. 

Stay tuned.......

Almost there -- Update on levels to watch

My macro indicator declined to -15; at this rate, it's possible that it will give a "sell" signal next week.  However, as I mentioned in my post last week, one of two confirming indicators will need to "fire" as well.  The levels to watch are as follows:

For a RSI divergence, the S&P 500 would need to meet or exceed 2868.88 next week and close below 2826.05.  Alternatively, for a trailing ATR3 stop confirmation, the S&P would need to break 2759.18 to the downside.

Given the attention on a trade deal with China, I wouldn't be surprised if the market meanders into June and possibly rise on hopes of a positive outcome.  However, I don't believe that it will change the "complexion" of the market.

If my macro indicator goes below -20, I will execute my sell strategy as detailed in a prior post and I'll be looking to see when the indicator reverses to the upside.  Although market troughs or bottoms are challenging to predict, my macro indicator is showing that a possible bear market in stocks could extend well into next year. Stay tuned.

Formulating a game plan

My macro indicator dropped again this week to -10.  Consequently, I continue to formulate a game plan to execute in the event the indicator declines to -20 or less.  In the last 18 years, every time my macro indicator reached this extreme level, the S&P 500 has declined more than 20%.  In this post, I will discuss key levels and other technical indicators that must trigger to confirm my macro indicator.

As I mentioned in a prior post, I will check two confirming indicators if my macro reading goes down to <= -20. Currently, these two indicators -  Weekly RSI divergence and the Weekly ATR3 stop - haven't been triggered.  The RSI divergence indicator will trigger if the S&P meets or exceeds 2892.15 sometime next week and closes below 2859.53 on Friday.  The ATR3 stop - a slower, less sensitive indicator - will trigger if the S&P declines below 2759.19.  An exit after a RSI divergence will likely lead to a sell signal more favorable (profitable) than the slower ATR3 stop.  In either case, my primary and secondary indicators (working together) will give me more confidence to support my sell strategy.

Have a nice weekend.

No signal today

My indicator dropped to -4; not enough to trigger a trade.  Have a nice weekend!

Anxiously awaiting market data

With the events of this week, I'm anxiously awaiting market data to update my macro indicator -- the data is published every Friday at 12:30.  Given the possibility that I will get a sell signal on Friday, I wanted to share what I plan to do.  Consistent with my overall strategy, upon a sell signal, I will:

1.  Sell my holdings in market-beta (S&P 500 index) and all high-beta (e.g., high tech stocks) - this
     comprises about 20% of my portfolio
2.  Sell profits in all dividend stocks which have appreciated 10% or more - dividend stocks comprise
     about 80% of my portfolio

Note that a sell signal will encompass two elements:  A macro indicator reading of -20 or less and one other long term technical signal (e.g., negative weekly RSI divergence).

Given that fact that your investment strategy differ might differ from mine, you should contemplate ways to reduce risk and at minimum, rebalance your portfolio.  Some of you that subscribe to my email updates will get this post Friday morning.  If I get a sell signal, I will try to publish a short post shortly after 12:30 on Friday -- note that Google distributes email updates one day later.  My capabilities to publish an update will be hampered by the fact that I will be traveling tomorrow.

Market might be nearing medium / long-term peak

My macro indicator dipped this week to a reading of 5.  It was 24 last week.  This continued deterioration is concerning.  As mentioned many times before, a reading of -20 will likely cause me to take action to reduce my equity exposure.  If necessary, I will post an update next Friday.