When To SELL; Technical Analysis for All

Investors: Is Your Selling Strategy in Order

Getting your selling strategy in order and formalized is probably one the facets of investing that you have the most control over. If handled properly, it will protect your money from big losses, instill confidence in yourself, and avoid much financial stress and anxiety.

Having an exit strategy is most appropriate now that the stock market is in a precarious place, having recently falling into correction territory with plus 10% losses in the popular averages.

With Thursday’s action behind us, the major equity (stock) market indices are down close to 20% from their late summer highs. That’s right on the cusp of a defined Bear Market! Note that bonds have come alive here and Gold is rising also.

Thus far in the fourth quarter, here’s the tally:

Stocks (Dow and S&P 500)  down 13% and down 15%
Bonds,  intermediate / long:  up 3.3% and up 4.5%
Gold, bullion price:  Up $72 / ounce, or up 6.1%
Cash and short term money market funds are paying 1.5% to 2% annually, so they were ahead a tad over the 3 months.

Technical Analysis - Think About the Math

Investors do not know with certainty how their stocks will perform. There are  just too many variables affecting the buy and sell decisions of millions of investors. Political, economic, company specific announcements, interest rates, etc. are all outside of our control mostly when assessing risks. These factors all swim around in a large punch bowl – we never know which sip will be the bad one for us.

BUT, what you can control to a large extent is your behavior with your investments on when to SELL. What does that look like? There’s one strategy that’ll work for us all. Perhaps your financial advisor or planner did not explain to you: STOP LOSS.

In its simple explanation, you would sell your stock when it fell a certain percent from your cost price – or the most recent HIGH price. That will lock in the gain or loss for you. Let’s look at Apple stock, a darling of Wall Street for years now, until the recent 30%+ decline. Apple stock reached $232.66 in early October (green rectangle on the chart). That’s factual and known then and now.

It does not matter what you paid for Apple stock – that is past news. You can only SELL it for what others will pay you today! So, the term STOP LOSS can either lock in a GAIN for you – if you paid less – or limit a LOSS for you – if you paid more.

I use a 7% to 8% stop price because that has shown to be a wide enough measure to weed out the short term blips of price action. So, your sale would be at near $215 using 7% or 8%. The blue line is another indicator (moving average) that I use as a confirmation signal to sell, beyond the discussion today).

See the green circle where the price was very erratic? If you were busy and could not sell, you should have SOLD in the $200-205 range as a final trigger pull. A $200 sale would be a 14% loss, which is still manageable and acceptable in fast moving conditions. 

 

You NEVER want to be in a position to give up a 30% or 40% decline in a stock you own, and could have mitigated that decline greatly!

Apple’s down $75 a share or 33% from its high; that means it needs a 49% gain to get back to $232! Likely soon?  A 15% loss needs just a 18% gain to get back to even-steven.

Caveat: Not every stock you own will show the same pattern or clarity that Apple has shown us. But in the end analysis, TECHNICAL ANALYSIS and STOP LOSS selling can provide you with a better batting average with your portfolio of stocks.

Browse on over to a popular financial site like: FINANCE.YAHOO.com, or your brokerages site and plug in the ticker symbol and view your chart to go through this exercise with your stock holdings.
 

E-mail or call with any questions, and have a Merry Christmas and safe Holiday ahead.

I’ll recap 2018 in my next post in January.

🎄🎄🎄
 

Sure enough, we’ve enjoyed a nice robust rally for close to 10 years now, and if you have been fortunate to own assets like stocks or mutual funds, you are no doubt happy campers.

Stocks Fall, Election Results Stall

Wall Street celebrated the Veteran's Day observed Monday by reeling and ending down sharply for stocks, while bonds stayed pat, and oil slid below $60 a barrel. Gold fell back towards the $1,200 level. Mid-day Tuesday, the averages are mixed to down a bit (100 points lower on the Dow).

Monday, stocks fell between 1.9% and 3% for the Dow, S&P 500 and Nasdaq Composite - rough sledding indeed on the day when banks and Federal offices were closed in observance of Veteran's Day, November 11th.

At the end of the day (I never did like that phrase), but it's appropriate here, sellers had the upper hand over the buyers. The fall today takes us back to near even-Steven for the past week; when stocks rallied sharply from the late October lows. Year-to-date, were up 2-3% in the popular averages. Many stocks now are NOT up this year, and have some real catching up to do.

What did work Monday were the defensive sectors: Utilities, Real Estate, Consumer Staples and Communication Services. The latter 2 were down less than 0.8%, while the first two saw small gains.

The contested election results in a few states - and the ensuing news over the weekend - probably did add to the uncertainty in Monday's trading. Tuesday marks one week since the election voting took place, and ballot recounts and court orders will take some time to sort this all out.

I'm not taking sides here, but having been a voter in Broward County, Florida for most of my adult life (since 1976), many of the elected officials are bad actors time and time again. 

Perhaps other Counties just don't get the attention of the larger Miami-Date, Palm Beach and Broward areas. Look up how many Broward School Board members have been sentenced to jail time for influence peddling, graft, corruption and the like. It'll make your head spin. Just follow the money, or this week the missing boxes of ballots - and you'll find someone with their hand in the cookie jar, so to speak.

My recommendation is to watch your pot of money, and allocate it away from an aggressive stance until conditions improve. You can then sleep better and have some liquidity for the next opportunity.

Will Rogers stated it this way. "I'm more concerned about the return of my money, vs. the return on my money". 

Thanks for reading.

~Barry

Scary Investment Trends; Fear or Greed?

Scary Investing Trends

With Halloween fast approaching, I'm seeing some very creative decorations around the neighborhood. Ghosts, tombstones with morbid etchings, and the like.



I am also seeing and want to report to you, some disturbing investment trends that are sure to scare some investors into making some bad money decisions. 

One trend in the works since the 2007-2008 market crash is stock ownership. The percentage of household that own stock has fallen from 65% to 55% in the last 10 years. 

Looking at the various age groups in the study, every age range except age 65+ saw a decline in stock ownership. And remember, we're had a very good bull market in stocks for 9 years now - after the bear market ended in March 2009! 



Why is that? Well, the reasons are many no doubt, but that last recession and bear market (2007-2009) cut deep into the psyche of many investors, many of whom lived through the 2000-2001 market meltdown also. As an example, if you were born in the mid-to-late 1970's and started your career and investing at age 25, in or near 2000, you experienced the "lost decade" from 2000-2010 when stocks were essentially flat; no gain or loss. Then you may have dipped you toe in the water in 2011 or 2012 and saw some nice gains from there. Fear of loss was stronger than your fear of missing out. 

Then a few years earlier, in 2005-2006, the real estate downturn started, and your biggest asset - your home - plummeted in value (unless you were prescient to sell at the top). 

No generation has been exempt from bear markets, where stocks fall sharply after bull markets end. That real estate bear market had never occurred before to that extent.

I will include real estate in this, and say that the 'lost generation of investors' includes those who owned stocks and real estate, since both suffered severe bear markets during that 10 year span. 

Looking really far back, to the Great Depression of the 1930's - research shows that adults who lived through that - they would be your grandparents or great-grandparents age-wise were 1/2 less likely to invest in stocks the rest of their lifetimes; just an average 13% ownership in stocks. 

That was the case for my grandparents, and I evidenced that first hand how they gravitated toward bank CD's, Government Bonds, and F.D.I.C. insured deposit accounts. 


Fidelity Investments dug in to their client accounts and unearthed what I find to be spooky trends that are in place right now.

 47% of Fidelity's 19.7 million retail brokerage accounts are invested in aggressive portfolios, defined as those containing 85% of more in equities (stocks). Huh? 85%? Maybe they have their bonds, cash and Gold assets parked with other brokerages or banks. Hmmm, not likely. 85% is okay if you are 25-35 years old, with 25-35 years until retirement, but not for many or all. As Clint Eastwood growled out in his 1973 Magnum Force movie, "A man's got to know his limitations".

On the brighter side, Fidelity also reported that one-half (50%) of their client's 401-k monies were invested in target date funds. Those are mutual funds and others that invest in stocks and bonds, but decrease your stock market exposure, and increase your fixed income (bond) holdings as you age, thus lessening the volatility of your money when you retire. That's a rather smart strategy if you don't want to hire a manager, or don't have the time or energy to do it yourself. To me, this show a reversal of the quip from above, in that investors are now more fearful of missing out vs. the fear of loss. 

Believe me, the fear of loss will rear its ugly head again. You could make an argument that it's begun already, with the popular stock market averages (Dow, S&P, Nasdaq) down 8%, 9% and 11% from their September highs as of today's closing quotes.

Bonds have been held back and have not countered the fall in stock prices. Gold has gained 4% since stocks peaked last month.



Be careful out there, watch the charts, and have a plan in place that's rules based, not emotional-based.