Market Sitting On Fine Bull/Bear Line (SPY, IJK, GLD, SLV)

Chris Ciovacco:  We updated our similar markets study last night. The results are similar to the first pass. As mentioned in the July 18 video (see below), the slope of the S&P 500’s 200-day moving average remains a key differentiator between markets that should have been sold and markets that warranted a more balanced approach to risk management.

The current slope of the S&P 500’s 200-day is basically flat, telling us to reduce risk, but not to throw in the towel yet. If the slope of the 200-day turns down especially for more than a few days, we will reduce risk further.

Similar Market Study Update - Ciovacco Capital - Short Takes

The green arrows in the charts below show the midpoint of the similar historical periods as identified by the CCM Bull Market Sustainability Index (BMSI) and CCM 80-20 Correction Index (80-20 CI). Notice in 1998 the slope of the 200-day flattened out, but did not turn over in an obvious manner. Stocks recovered in 1998 and went on to make new highs.

Similar Market Study Update - Ciovacco Capital - Short Takes

In 1999, we had a similar situation; the slope of the 200-day flattened out, but did not turn over in an obvious manner. Stocks recovered in 1999 and went on to make new highs.

Similar Market Study Update - Ciovacco Capital - Short Takes

In 2000, the bear market began in earnest after the slope of the 200-day rolled over in a convincing manner.

Similar Market Study Update - Ciovacco Capital - Short Takes

The 2007-2009 bear market also ramped up its bearish bias when the slope of the 200-day turned negative.

Similar Market Study Update - Ciovacco Capital - Short Takes

As we mentioned in the video above, we do not feel 1984 is all that good a proxy for the current technical backdrop. However, when the slope of the 200-day turned up, it was a bullish signal.

Similar Market Study Update - Ciovacco Capital - Short Takes

Given the recent deterioration in the market’s risk-reward profile, we have reduced our mix of risk assets and more conservative assets to roughly 50%-50% depending on the needs and risk tolerance of the client. If the market can find its footing soon, we will maintain that mix for a time. If we see further deterioration, we will raise more cash. The risk portion of our portfolio is mainly comprised of the S&P 500 Index (NYSE:SPY) and mid-caps (NYSE:IJK). Our conservative portion is primarily made up of cash, bonds, gold (NYSE:GLD), and silver (NYSE:SLV). Our gold and silver represent a hedge against the possible further debasement of paper currencies. The Fed meets next Tuesday; we believe the odds are decent they will make some precious-metal-friendly comments.

Written By Chris Ciovacco From Ciovacco Capital Management, LLC

Chris Ciovacco began his investment career with Morgan Stanley in Atlanta in 1994. With a focus on global macro investing, Chris uses both fundamental and technical analysis to assist in managing risk while looking for growth opportunities around the globe in all asset classes. If you are looking for an independent money manager or financial advisor, Ciovacco Capital is worth a look. Chris graduated from Georgia Tech with Highest Honors earning a degree in Industrial and Systems Engineering in 1990. His experience in the professional ranks began in 1985 as he began working as a co-op for IBM in Atlanta.

Ciovacco Capital Management, LLC (CCM) is an independent money management firm serving clients nationwide. By utilizing extensive research, disciplined risk management techniques, and a globally diversified approach, CCM prudently manages investments for individuals and business owners. Our focus is on principal protection and purchasing power preservation in an ever-changing global investment climate.

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