Start with a move below the _____ day MAIt is the end of the 3Q today. There are more than three months to the end of the year. The S&P and the Nasdaq are looking to close the quarter at levels record….de new.
If you are invested in your 401K plan, it means that you should have done pretty well. The S&P is 12.35% year to date. The Nasdaq is up 20.52% year to date. Not bad.. The rule of 7 says to 7% and you double your money in 10 years. If you have a 21% in one year, that speeds up as double.
Get excited? We know about the fear of failure in our trading and investment. That fear said «I’m afraid that I’ll lose money.»
There are also what I call the fear of success.
The fear of success? What the heck is this?
If you are rising from 12% to 20% in your retirement account this year, are you not a little afraid of success? Don’t worry about taking these benefits away?
Most people would say, «Yes!».
They are starting to hear these voices in your head that say:
- «SO we are due for a large correction»,
- «10 to 20% decline (if not more) is just around the corner.»,
- «No one went broke taking a profit».
- «Bulls and bears make money, but pigs get slaughtered»
These voices will get you out of the market and you feel ok for a bit, but eventually, if the market continues to march higher, instead of losing sleep because of your «fear of success», you have the «fear of not being invested.»
The fear of failure.
The fear of success.
The fear of being square.
Shit. How do you get rid of this fear?????
Well one thing you can do is not worry about the surface, but instead of worry about a risk of definition of level of the downside. What I want to say?
If you look at the daily chart of the Nasdaq index (see chart above), the blue line represents the 100 days.
In 2017, the price has not moved/closed below 100 days throughout the year. In fact, the last time the price closed below 100 days was back in November 2016. In 2017, the price tested the 100-day two times in August and every time the market has rebounded.
Therefore, there has been zero, nada, none, no, nothing close below 100 days.
I looked back in time, going back to the 90’s, and the other year, the Nasdaq has remained above (or below) 100 days throughout the year were in 2013. Ironically, the price was less than 100 days, the last day of 2012, but has opened and closed above the MA on the first trading day of the year and remained above it for the entire calendar year (until April 2014)
So instead of having fear about your success or not to be invested, would it not be logical that you stay invested — i..e. not to be afraid — until the price is dropped below 100 days at least?
Let the «market» take you, not your fear — whatever the event, the fear may present itself.
What about the loss of the price of the MA?
It is true that if you wait until the market is below the 100 days to start to quit or reduce the risks, you have a loss of crest?
Yes of course, but that risk today 6492 would be about 3%. The Nasdaq is up 20% this year. If that 10 to 20% decline is coming, is it wise to risk 3%, before losing the sleep (and the potential for more higher profits)? Yes, I think so.
What about the S&P?
Like the Nasdaq, it is looking at the end to a record level today, and as it is, the index has not closed below 100 days throughout the year (the last time was in November 2016). Going back in time, it has no other in recent years, where the dynamism not to go below the MA to the year was true.
So, with the S&P 100-day MA at 2449 and the price is currently at 2515.61, you have to sacrifice to 2.6%, before taking some risks. If only 10 to 20% is just around the corner — can-be — giviong a little, to stay in the market in the case where it is not able worthi.
Another thing that you can do in order to cover the risk of your investments in shares, without waiting for the break below 100-day, would be to buy puts after large gatherings.
I like to use QQQ puts. They tend to mimic the Nasdaq. I’m going to buy pretty close in strikes (1-2 months). I do not seek to cover the whole portfolio — just a little bit so that it gives me a little comfort.
This is not a perfect hedge on the decline, and he does not stop to company-specific risk (say, if a high flyer loses 20% on some news while the rest of the market increases), but it is wonderful for your fear in these days when the N. Korea is shooting off missiles. You see the positive points in your investment account, and it allows you to say, I saved x amount because of the increase of the puts. A gold ETF also gives a «cover»/diverse feeling. The options expire without value if the records continue, but if your portfolio mimics the index, you need to be ahead of the game.
SUMMARY: If the stock market scares you, especially after these oversized gains. If you are afraid of your success, and who tries to get out (and switch up the fear of the «fear of being non-invested»), take the unique technical indicator that the 100-day MA is to give us, and use it to decide whether to reduce, to exit or hedge your portfolio of investments.
You will sleep better AND be ready for when — and if — a huge correction at the corner of the street, to show.