The VIX remains at all time highs as fear continues to rule the markets.  My sense is that the average retail investor through their 401K plan have taken a “head in the sand” approach by avoiding the reality of account depreciation. 

It is regrettable that most people have bought into the “hype” of “Buy and Hold” The public has been duped into believing that they cannot time the market.  HOGWASH!!!  By simply paying attention to the 50/200 day simple moving average crossover on a broad market index like the DOW, you could have saved yourself from this massive collapse in the market.  The 50 sma crossed over the 200 sma in early January 2008.  You may say that I am practicing Monday morning quarterbacking.  So I encourage you to backtest this simple indicator and you will see that I am right.  The rule is simple, get out of the market when the 50 day sma crosses over and below the 200 day sma and stay out until the 50 day sma crosses back above the 200 day sma.  (see the INDU chart in the chart section above) 

This is basic market timing that can be used by utilized by the average “non market” type of person.  Those of us who make our living in the market use more in depth, finer point timing mechanisms to take advantage of shorter term swings in the market.  But for overall broad market trends, the 50/200 crossover can keep you on the right side of the market.  The type of mentality that has been perpetrated upon the hard working people of our country to their detriment angers me.  These folks are just trying to make ends meet at the same time trying to help their kids get started, helping elderly parents and hopefully putting aside a little bit to retire on.  In the meantime you have some “investment guru” telling you that you can’t time the market.  “Just stay in and take a beating.”  All the while they are getting paid to give you that advice.  It’s shameful.

You might say, “All well and good Robin, but I can’t control my 401K.  Yes you can!  Most plans have investment choices inside the vehicle that will allow you to switch asset classes between various funds like income, growth, balanced funds, bonds and money market.  The strategy is simple. When the 50 day sma crosses below the 200 day sma, switch to money market or bonds and stay there until it crosses back and then move back to equities.

Back to the market, we are due for a bullish move.  I believe that most of the continuous bearish movement in the market is due to hedge fund redemptions which I first mentioned several weeks ago in the blog before it hit the headlines.  Unfortunately, I think that we could see a major hedge fund or two going up in smoke soon.

From a technical perspective, I believe we could retest the lows from 10/10/2008 and possibly go lower.  There will be a point when there will simply be no more selling pressure and stocks that are trading at or below book will just be too attractive to not be purchased.  The shorts will begin to cover which will begin the bullish momentum and then others who see the train leaving the station will jump on board in a buying frenzy.  It could be a massive move to the upside at that point.  The move will not be long term and if you miss the first part you will miss a lot of it.

I am boarding the train early so I can get a seat.  Under any circumstance, if you are a long term investor, you will probably not regret buying solid, undervalued best of breed stocks at these levels.  However, again I must remind you to do your own due diligence and make your own trading decisions.  Always remain within your risk tolerance.  I’m the RobinHood Trader and I’m all for you!!

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