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INM Oct '08 - Smart Asset Allocation Tactic - Go To Cash During Bad Markets
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


I can only imagine how it feels to be a parent who repeatedly asks their kids to do something, but the child defies them.  I obviously don’t have any kids, or maybe I would know that feeling first hand.  However, I get a feeling that is probably a bit similar when hearing from investors who have been hurt by the weakness in the equities market this year.  Maybe I didn’t do enough pleading, or more investors would have gotten the message, but experienced chart readers know that the major averages have been getting clobbered.  This is nothing in the way of “break-through” news for you if you study the major averages each day, so hopefully you’ve avoided any great set-backs.

In my recent travels, I told the members at the San Diego IBD Meet-Up in July that our clients at Source Capital were in a cash position (avoiding stocks) because the technical shape of the major averages (the M criteria) was poor.   During the Santa Monica Meet-Up in August, when pointing out that the major averages were all trading below their longer-term 200-day moving average (DMA) lines, again I pointed out that we were safely sitting in cash, earning a money market interest rate .  We must all recognize the odds are not in favor of stocks rising - when there are clear signs of an unhealthy market.  So the same was true while relaxing for a short vacation in Kaua’i in September, as folks asking how I was handling the treacherous market environment heard me say the same thing – “I’m completely out of stocks.”

There is little doubt that these are volatile times for investors.  To me, it is somewhat stunning how many times there have been “unprecedented” breakdowns in the equities markets over the 21+ years since I started as a licensed representative.  Each time, it seems that everyone looks at the failures with surprise, as if the good times that preceded were never going to end.  Then, the regulators craft new patches to stave off future abuses, under the premise, of course, that dirty dealers and not enough industry oversight led to the problem. 

I won’t dare to guess what the near-term future holds for stocks, but I will continue watching for improving leadership.  We might eventually spot an improvement in the Advance/Decline lines for the NYSE and Nasdaq exchange, but the graphs included below give you a clear picture of the ongoing negative trend.  We have seen some recent sessions with greater than a 10-1 ratio of decliners versus advancers, which you should recognize as very compelling statistical evidence that the odds right now are not in favor of you profiting in stocks.

The good news is that each healthy bull market phase includes a bucket full of high-ranked leaders that rise many-fold in price.  During those bullish times, it is also usually true that a lot of stocks without high ranks and good fundamentals rise right along with the tide.  Widespread leadership is a very reassuring sign that investors have favorable odds.  Careful stock selection using the investment system’s criteria has the best chance of helping investors achieve their goal of “above average” investment returns during these bull market periods.  Meanwhile, each bear market phase usually punishes the majority of stocks and leaves investors with few safe havens –if any.

Please feel free to contact my office if your approach to asset allocation has been questionable, leaving you out of position and vulnerable to damaging losses in self-directed accounts, or in investment accounts that are managed with the helps of a broker or advisor.  If your mutual fund holdings have been eroding your retirment account, put yourself in a position where you can easily reduce exposure to equities during bad times like these.

 

About Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program.  Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.

The recommendations made by CAN SLIM® certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.


Comments contained in the body of this report are technical opinions only and are not necessarily those of Gruneisen Growth Corp. The material herein has been obtained from sources believed to be reliable and accurate, however, its accuracy and completeness cannot be guaranteed. Our firm, employees, and customers may effect transactions, including transactions contrary to any recommendation herein, or have positions in the securities mentioned herein or options with respect thereto. Any recommendation contained in this report may not be suitable for all investors and it is not to be deemed an offer or solicitation on our part with respect to the purchase or sale of any securities.

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The recommendations made by CAN SLIM® Certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil + Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil + Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.

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