2 Things to Watch to Protect Your Portfolio
With the market struggling over the past few months, you might be wondering whether to lower your stock holdings. You can keep an eye on two things that can save your portfolio. Both are moving averages on the S&P 500.
The first one is the 20-month moving average, which measures the average closing price for the past 20 months and then plots it as a line on a chart. Should the S&P close below the 20-month moving average this month, it would be a bad sign for the market. In 2000, the S&P closed below the 20-month in November and then proceeded to drop another 40 percent. Had you lowered your equity holdings in November when the 20-month was broken, you would have saved yourself a lot of pain.
The second one is the 100-week moving average. If you are feeling skittish about the market and the economy, keep an eye on this. It could be a heads up for what happens with the 20-month moving average. (Because the readings on the 100-week can be calculated weekly rather than monthly, you will get a bearish reading earlier than you would by waiting until the end of the month.)
Should you see the S&P close below either of these moving averages, you will want to lighten up on your stock holdings and increase your fixed-income holdings. Right now, the S&P is below the 20-month and above the 100-week.
Rick Pendergraft
Inspired by his high school economics teacher, Rick Pendergraft fell in love with the markets at an early age. He entered his first investing competition at 17, and opened his first brokerage account before he finished college. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide. After a ten year career in banking, Rick decided to pursue trading full-time. To get his foot in the door, he started out in the sales department at Schaeffer's Investment Research. It was not long before his talent was recognized and he was invited to apprentice under Bernie Schaeffer, one of the top options traders in the world. Rick thrived in his new position and twice received the award for "Top Trader."Rick has developed a loyal following of readers who are grateful for his timely warnings and profitable advice. He is widely recognized as a market expert and has been frequently quoted by Reuters, BusinessWeek, Forbes, USA Today, the New York Times, and the Washington Post. Rick's primary focus is on identifying short and intermediate term rising and falling trends in the major market sectors. His analysis is based on technical factors along with indicators of market sentimentRick lives near Delray Beach, FL with his wife and three children.