Plan Confidence: Semi-Tactical Models Update

In late August/early September, we unveiled our “Semi-Tactical” model for our Plan Confidence advice service (Software as a Service – SaaS).

The “Semi-Tactical” models mirror our “Strategic” models when they are fully invested.  However, I watch the daily stockcharts.com for the S&P 500 index ($spx) and the level of the Volatility Index (VIX).

There are 3 components of the chart that I monitor.  The RSI (relative strength indicator), the 50 and 200 day moving averages and the MACD (moving average convergence divergence).  I monitor these numbers everyday.  If we are fully invested, I wait for two (or more) of the indicators to go negative (sell signal).  However, since most of the advice through our SaaS is going to Employer Sponsored plans (401k, 403b, etc) I need to be cognizant of “short term trading restrictions” that many plans have written in their documents.

Therefore, we cannot run a classic “tactical” strategy and try to “time” the market.  Many tactical strategies have more trading than the quarterly re-balance strategic counterparts.  Too frequent trades in many employer plans could be blocked, delayed or have (IMHO) excessive fees charged to the participant.  So I am cognizant of “false positives” and cannot run a pure “tactical” model over the assets I advise.

So I run (what I call) a “semi-tactical” model.  I wait for three days in a row of 2+ sell signals before making any recommendations to move money out of the stock market.  This helps us avoid the “false positives” but also means that we take a little more loss in a declining market (correction or sell off).  

On Friday, October 12th, my strategy indicated 3 days in a row of 2+ “sell” signals.  Monday, October 15th all of the clients in the Plan Confidence “Semi-Tactical” models received an email (or push notification on their phone if using our app) that informed them to sell their equity (stock) holdings and put them in cash.  Of course, the Dow rallied 547 points on Tuesday (so those who sold on Tuesday were best off).

I fully expect the volatility and roller coaster ride of the stock markets to continue for a couple of weeks.  (We are exactly two weeks away from the mid-term elections).  However, even though we will have “political risk” baked into our markets for the next couple of weeks, I will be solely reliant on the charts to make decisions on when to re-invest the money that is now sitting in cash.

For those of you using our Semi-Tactical models, please be sure to monitor your email/push notifications at 9am CDT every day.  For those that are just reading the blog, I will let you know (about a week after) when the charts show that the models should be fully invested again.

I thank you for reading our blog and look forward to any questions, comments, concerns or compliments that you may have.

-Kevin T Clark, RF

Kevin is the Co-Founder, CEO and CCO of Plan Confidence Corporation (PCC).  PCC is an Internet Only Registered Investment Adviser with the Securities Exchange Commission (SEC).  PCC provides advice to participants with money in their employer sponsored defined contribution (DC) plans (401k, 403b, etc).  PCC also uses “Co-Advisory” agreements with many Registered Investment Advisers (RIAs) throughout the United States to provide investment advice to their clients.