Market update

Market update 02/28/2016

The market has been great for the last week. However, the market is still risky. We called it a tradable rally or the dead cat bounce. The U.S. market may be up for another 6%. At that time, you may want to be conservative (i.e. staying in cash or short-term bonds) even the Golden Cross (the charting without charts) tells you to return to equity. Today, the global markets such as Europe and Asia are still in very poor shape.

Today (2/29/2016), SPY’s SMA-200 is -3% and SMA-50 is 0%. Hence, according to the Golden Cross, we should still stay in cash.

The results of following table are as expected. During a market down trend or expecting a fierce correction, utility (ETF XLU) and consumer staple (XLP, those products you buy no matter what the economy is) are in up trend. The opposite end is consumer discretionary (XLY) and technology (XLK). The following returns have been annualized from 1/4/2016 to 02/28/2016. SPY represents the general market and is used for comparison.

ETF	Ann. Return
SPY	-28%
XLU	48%
XLP	17%
XLY	-18%
XLK	-16%

When there is a market plunge, most sectors including XLU and XLP would go down. When that happens, it may be a signal of a market bottom or close to it. It followed a similar pattern in 2007-2008 market plunge. However, the timing is different. First it is hard to identify the exact date for the start of the plunge; there were double tops (a technical pattern) that preceded the plunge.

Why we wanted to return in March, 2009 (the bottom)? The technical pattern told us a little later than March as it depended on the data (the rising stock price). The result is: From 3-2009 to 1-2015, the market gained 180%. Many abandoned the market totally ignoring the fact that the market ALWAYS returns.

This is my educated guess and the market is not always rational. I am not responsible for any loss.
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