How did we know when to sell?
One of the questions that we are starting to receive from our clients we are advising and from a few of the financial advisers who are using our models is, “How did we know to get out of the stock market last week”? And, “When will you be getting back in”??
And here is the short answer, “We didn’t and who knows”!
However, the charts did and do.
Let me give you a little context here. But first, a legal disclaimer. This blog is not financial advice. If you are using our service, then you receive advice through our app or web version. But this blog is not advice for anyone. It’s just an explanation on how we run our service.
We run “strategic” (buy and hold) and “tactical” (buy, sell, buy, sell, repeat). Today I am going to discuss the tactical version of the advice we give our clients. The strategy behind any tactical model is that there is time to be fully invested in the stock markets and times when you should not be in the stock markets at all.
There are tons of theories of “when” to buy and sell. That is the trick for any tactical strategy.
So, here are the details about how we manage the tactical advice at Plan Confidence Corp.
It’s a charting technique.
We take a look at the S&P 500 ($spx) on https://stockcharts.com/. I personally look every morning before the markets open. There are three components of the chart. There is the RSI (relative strength indicator), the 50 day and 200 day moving average and the MACD (momentum indicator). I professionally believe that the MACD is the strongest indicator and the RSI is the weakest. However, I look at all three components. I also look at the “VIX” (volatility index) https://www.cnbc.com/quotes/? symbol=.VIX which is also known as the “fear” index.
Each one of these components will show a “buy” or “sell” signal. And if two or more of these signals show a “sell” signal for three consecutive days in a row, then our clients using the tactical models will be told to move their stock holdings into cash. An email and/or “push” notification will go off at 9am EST letting those clients know to log in and look at the new advice. We use three consecutive days due to many 401k plans still having short term trading rules. We don’t want to trade too often.
Also, because we have the “3 consecutive day” rule, our strategy works best when there is a longer term market direction (up or down). The longer the one way direction, the better our tactical strategy works.
So days like Monday when the markets fly high, we did not react. Which was good because Tuesday there was a large selloff. Until Wednesday when there was a big rally upwards until today when there is a large market selloff. And our clients are sitting in cash for their stock holdings and fully invested on their bond holdings as we told them last week to sell their stocks. And that won’t change until we get a direction that lasts 3 days (and hopefully more). And no one knows when that will be.
We will never be out of the market at the “top” or get back in at the “bottom”. We are not trying to time (guess) the tops and bottoms. We are using a disciplined approach to give our clients the best advice that we can possibly give them for their employer’s retirement plans, while being cognizant that many plans don’t want you to trade your account.
I was even forwarded an email today of an (extremely large) plan sponsor who sent out an email to all of their participants letting them know to “stay the course”. Another plan sponsor had posted a “pop up” on their website urging their clients not to trade. I know what they are trying to do. They are trying to stop the “panic” trading.
This is why we use the charting technique listed above at Plan Confidence Corp. It doesn’t matter what the current “headlines” are. I just have to wake up, grab a cup of coffee and look at the chart. And then tell you to buy or sell or do nothing, without any panic at all because we have a strategy!
Hopefully you do too!
Stay confident my friends!
-Kevin T Clark, RF