Back To The Charts

In technical analysis some chart patterns are easier to recognize than others.

The stock market got hit very hard yesterday but odd to me is that there did not seem to be a lot fear accompanying the decline despite the S&P 500 spending most of the day below 800. The volume was not huge, 2.5 billion shares, it was not quite a 90% down day, I think maybe the biggest sign that it was a bad day (besides what the actual index did) was that huge move in gold continued higher.

Michael Kahn wrote in Barron's yesterday about a bull market in gold, the yellow metal is up better than 10% YTD. There might also be a bull market of sorts in the absolute return funds as well. The ones I have been using and writing about are generally up a couple of percent YTD which sounds boring but as of yesterday's close the S&P 500 is down 12.6% for 2009, 12.6%.

The environment for stocks has been lousy for a while, over a year. Before all this happened I wrote many posts that focused on planning for the next bear market; I talked about breaching the 200 DMA, raising cash, figuring ways to look less like the stock market and waiting for things to get healthy. The open end funds I use in this regard did not yet exist when I started writing about the planning which speaks, I think, to the evolution of portfolio construction.

There is utility to having explored this line of portfolio construction before the bear phase started, now during the bear and then after it ends. I think it helps with reorienting thinking toward time frames of an entire stock market cycle as opposed to a few weeks or months.

As bad as this market has been we are, in a way, lucky that "new" segments of the market are so easily accessed. Products that own commodities, currencies and absolute return were far fewer than today. While a good question might be has the existence of these "new" segments contributed to the bear the fact is that many of these things have done a good job as equities all over the world went down.

These things are working now but they may not work as well next time. A point I have tried to convey is to learn as much as you can about new products or new asset classes. You don't need to invest in all of them or really very many of them but they can allow for better protection and management of volatility when you most need it.