Thursday, August 18, 2011

No more hedging about HDGE

On February 1st of this year I noticed a new bear market ETF and immediately christened it as my new top Armageddon fund. This move might have seemed premature to some given the short track record at the time, but the performance of the Active Bear ETF (HDGE) has now exceeded even my optimistic expectations. As of today's market close (August 18, 2011) HDGE has bagged a six-month gain of 19.6%, while the S&P 500 index has lost 15.1%.

So far HDGE has not only risen during a market decline (a basic requirement of any bear fund) but it has actually gained more than the S&P 500 has lost. It may be that the fund managers have simply picked more volatile stocks rather than the best candidates for short selling, but regardless of the reason, I'm pleased with the results. HDGE remains securely at the top of my list of Armageddon funds.

Tuesday, August 09, 2011

Correction update

The decline of the S&P 500 index from its April 29 high is now 18% and counting, which is only 2% and 20 points away from triggering a bear market signal. This has wiped out the gains from the previous 12 months, and in the bigger picture yesterday's closing price of 1119 is a point below the closing price on April 2, 1998.

I'm very pleased to see the market decline like this, and I hope it continues. The stock market is still highly over-valued by historical standards, and even at these lower prices the dividend yield of the S&P 500 is barely above 2%. On a personal note it has been frustrating to sit on the sidelines in cash while the market continued to creep and occasionally surge upwards against all fundamental logic, so this is a psychological relief as well. My difficult choice to neutralize both bullish technical signals and bullish sentiment indicators with unprecedentedly bearish long-term economic fundamentals has, for the time being, been partly vindicated.

If this correction turns out to be the beginning of a bear market, then it was one of the stealthiest bear market onsets from the perspective of the technical methods that I use. The only analogous event I can think of is the market crash of May 1940 that came out of nowhere when Germany invaded France. Even the 1987 stock market crash sent a clearer precursor signal than the current decline. If the market turns around here against my wishes, it means ironically that the track record of my purely technical bear market prediction method will remain in good standing, so it will be a mixed bag for me either way.

Monday, August 08, 2011

Large correction & bear market watch

The S&P 500 index is hovering around 1150 as I write this, which is a 15% drop from the high point in April. That qualifies as a large correction. An official bear market requires a 20% drop, which would occur at an S&P price level of 1090.

Tuesday, August 02, 2011

Back near 1250

Here we are again. The S&P 500 index has closed at 1254, right at the floor of its 2011 range.

If it closes much lower than this in the following days, then the lower support level near 1250 will be officially breached.

However, stock market sentiment is solidly pessimistic right now, as you can see in much of the financial news this evening. This is the lowest closing price all year, and the market has fallen below the 200-day moving average, and that's apparently caused a slight panic. Neither of those stats means anything of course, but it sure makes for exciting, breathless news. Honestly, I wish this were the start of a bear market so that I could safely ensconce my money in some bear funds - but that's just another example of market pessimism.

Pessimism more often than not translates to increasing prices, so my guess is that the market is poised to bounce again. I'm staying in cash for a little longer at least. If the S&P closes below 1240 or so first, then I'll be proven wrong about the bounce, but that still won't be an official bear market signal.

In the more distant future, global financial collapse and/or hyperinflation still looms, particularly now that the U.S. government has decided to add trillions of dollars to our national debt. The timing and form of the collapse will be as much a political decision as an economic one, so it's impossible to predict what will happen and when.