The Nasdaq broke above it’s resistance of 1600. This is something it has failed to do four times in the last two months. It also broke above its descending 50-day moving average. Although the breakout was on low volume, it should bode well for the technical condition of the market. Other major indices also followed suit. Treasuries sold off today which is good indicator that investors are starting to take more risk. The clear leaders were commodities, energy and technology all of which were down significantly last year.
Allgen has been selling out of some bonds recently in order to reallocate back into the stocks.
A bear market creates fear, uncertainty and costly mistakes.
The conventional definition of a bear market is a decline in stock prices of 20% or more, lasting at least two months. Whether or not Wall Street is in a bear market, every investor can have his or her personal bear as well. Your personal bear market is an unbearable price fall in the value of your nest egg.
You can experience two types of bear markets, temporary and permanent. Markets tend to go up and down and then back up. In a temporary bear market, you lose 20% or more but eventually recover. In a permanent bear market, you lose 20% or more and you never get it back. All the historical evidence I’ve seen indicates that a properly diversified portfolio has never suffered a permanent bear market over the long term. Unfortunately, some common investor behaviors can easily turn temporary losses into permanent ones.
It’s challenging to tell anyone to hold on once they have witnessed an extreme downturn in their portfolio due to market conditions. Yet, that being the case…the best thing to do is reassess the composition of one’s portfolio in light of its purpose and time horizon for its use. The traditional mantras of “diversification across sectors, geography, asset classes” still hold true over the long term. However, these are highly ignored during severe bear markets where emotions usually take over and lead to costly mistakes.
So it might be a good time to remind ourselves that even during tough bear markets: Diversify – well diversified portfolios have not dropped as far as the market on the whole. This allows for a better recovery when the market does recover.
Assess Time Horizon – The level of volatility should be directly correlated to the amount of time one has until the assets in the portfolio are needed. In other words, the closer to retirement one is, the more conservative one’s portfolio should be.
Rebalance – history has shown that rebalancing can minimize volatility while enhancing returns. The basic notion is that buy identifying and maintaining a proper asset allocation, one will sell off assets that have appreciated to buy into assets that have depreciated. Adherence to this rule should eliminate much of the emotional elements of portfolio management.
Assess portfolio goals – if a portfolio has taken too much of a hit, a reassessment may require a realignment of goals (ie retire later, invest more now, etc.)
Unfortunately, while the above mentioned principles are not new, they are continuously violated by common investors who let emotions take over investment decisions. Panic can lead to mistakes, including the mistake of ignoring the portfolio rather than reassessing in order to retool one’s portfolio. Volatile times require more proactive measures. The market will have its ups and downs. But if one can follow these basic rules, one should be able to minimize the impact of the volatility relatively speaking over the long term. If you cannot apply these rules objectively, you should resort to the assistance of a financial professional that will help you in this area.
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
There are a number of technical patterns that you can use to determine price targets. In my experience there are four patterns that work really well: Head and Shoulders, Triangles, Rectangle Bases and Swing Trades. All of the following examples will give you examples of upside targets for going long, but the inverse is true if you’re trying to calculate downside targets when going short.
Let’s start with the Head & Shoulders Pattern: To be precise a bullish Head & Shoulders pattern is called a bottom-reversal Head & Shoulders and is inverted from the top reversal head and shoulders. To calculate your price target you take the difference between the bottom of the head and the neck line. Once you come up with that number you add it to the neckline to come up with an upside price target.
The next set of patterns you can use to determine price targets are triangles. There are three types of triangles; Ascending, Descending and Symetrical triangles. The way you determine the price targets are the same for each triangle. You take the distance of the apex of the triangles and add it to the breakout point from the traingle to determine your targets. For shorts you would subtract the distance of the apex to the breakdown. To study further click on the links above as stockcharts.com gives great examples.
The third pattern I want to discuss on how to determine price targets is the Rectangle. Determining the price target for the rectangle is relatively simple. You take the difference between the top and bottom trendlines and add to the breakout for longs or subtract from the breakdown for shorts.
The last targeting method is the swing trade or sometimes called an A,B,C pattern because there are three parts to the pattern. I will only focus on the long side and on how to use this pattern to come up with a target, as I could write an entire blog on swing trading alone. The basic pattern includes the first up move (A), followed by a pullback (B) (this pullback can not go lower than the start of A), then a second leg higher (C). To come up with the upside target you would take the distance of the (A) move and add it to the bottom of the pullback (B). See example as it is better understood visually…
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
The Investors Business Daily, in my opinion, is the best financial news paper available. Whether you receive the daily newspaper ($295/annually) or you subscribe to their website www.investors.com ($19.95/month or $169/annually) both are great deals. It is the only financial newspaper that focuses on technical analysis. They do an excellent job of updating you on a daily basis of the “market pulse” which is found in the “The Big Picture” section. Although the newspaper and website are packed full of up-to-date information everyday, you can easily peruse a few portions of the website or paper in a matter of 15 minutes to get essential information on what going on in the stock market. The most informative and useful sections of the publication are:
The Big Picture
IBD’s Top 10
The Real Most Active NYSE and NASDAQ
Investors Corner
IBD’s 197 Industry Group Rankings
IBD 100 (stock list)
CANSLIM Select (stock list)
Learning Center (investors.com only)
Stock Checkup (investors.com only)
The IBD and www.investors.com are tools I personally use and recommend to stay abreast of the world markets and come up with new stock ideas.
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
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