Wednesday, October 21, 2009

10 21 09 Market Comment

The stock market is bouncing back after a bit of sideways action the last few days. There is not much threat of the party coming to an end until the Fed begins withdrawing the excess liquidity they injected earlier this year. Of course a correction could develop for whatever reason, but it would probably be short lived.

Our High Yield funds continue their low volatility uptrend. We continue to deploy our 50 day moving average stop loss risk management strategy.

For some more aggressive accounts I have added a small position in an Australian and Brazilian ETF; each of these amount to just 5% of account net worth. Moving average stops do not work well with stock funds or more volatile sectors like these. For diversified stock funds we use a trailing stop of 8% and for sector specific ETFs we use a 12% trailing stop. We do not want to have the position sold just to see it bounce right back.

*  A trailing stop continuously moves the sell stop price up as the price of the security goes up. If the price moves down from its high by the predetermined percentage, it triggers the sale of the position. This allows the position to run on the upside while limiting the downside.

No comments:

Post a Comment