Once the election results were out, market reacted to it. Immediately Fiscal Cliff came into spotlight and dead lock in congress is dragging market down further. What should we expect in next couple of weeks? As you can see below, our guidance system helped us get out of the market and protect our capital. Volatility is on the rise as can be seen from below chart, which in turn means market in zig-zag mode and declining. The bullish trend channel was broken in late October, however market tried to hang on to MA(50) support. Once the election results were out, market continued its decline and currently very close to MA(200) support. Break of this support can drag it further down to 7500 area. The probability of market dragging further down is quite high especially if congress cannot come to a common grounds. Below weekly chart exhibits fake breakout also known as BULL trap. Observe the bottom portion where you can see MACD indicator, black line crossing red line indicating further drop in coming weeks. What does it mean for our investments?
401K - Remain in cash or money market fund until we see signs of turn around. You might be tempted to allocate your money into bonds but be careful and watch what happened in August 2011. Even bonds would decline if congress does not act in time and US credit rating is downgraded further. IRA - This might be a good time to look at bear ETF list and choose accordingly, however do not forget to have STOP LIMIT. Stay in capital preservation mode and be cautious... Comments are closed.
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