avoiding the abyss
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How to protect your investment portfolio in a downturn
AVOIDING THE ABYSS
Aim is to equip you with techniques toRecognise the start of a downturnDistinguish a bull market pull back from a
downturnMonitor the market on a monthly basis
Consider FTSE 100 over last 15 years
Consider FTSE 100 over last 15 years
Since 1995 FTSE has been range bound
Consider FTSE 100 over last 15 years
Since 1995 FTSE has been range boundLikely to continue for several years!
Use simple moving averages to indicate trend
Use simple moving averages to indicate trend
100 day and 400 day simple moving averages help identify bull and bear phases
But one indicator is not enoughMoving averages usefulBut can lead to false signals
Need to correlate withUS Treasury Yield Curve52 week highs and lows
What is the US Treasury Yield Curve?It is the difference (or spread) between
The yield on a 10 year US Treasury Bond andThe yield on a 3 month US Treasury Bond
What does it mean?Rising slope = improved market expectations
Yields rise as maturities lengthenConfidence in a growing economy
Falling slope = worsening market expectationsYields start to decrease as maturities lengthenWaning confidence in economy
Negative = “inverted yield curve”Short term yields higher than long termExpectations of market decline
Consider US Treasury Yield Curve
Consider US Treasury Yield Curve
Beware inversion points!
Consider US Treasury Yield Curve
200 points long term average
Consider US Treasury Yield Curve
200 points long term average
Above “good”
Below “bad”
What are 52-week highs and lows?Simply the highest or lowest closing price
for a share over 52 weeksNormally counted for FTSE 350 shares
What does it mean?When number of highs > number of lows
Time to buy the marketWhen number of lows > number of highs
Time to sell the market
Consider 52-week highs and lows
Consider 52-week highs and lows
Bear market
Putting it all togetherConsider 2007 – 2008 periodExamine each chart in turnRerun history
FTSE 100 in summer 2007
FTSE 100 in summer 2007
Moving averages still bullish
US Treasury Yield Curve in summer 2007
US Treasury Yield Curve in summer 2007
Beware inversion!
52-week highs & lows in summer 2007
52-week highs & lows in summer 2007
Beware lows > highs!
Summer 2007 warning signsFTSE 100 dips briefly below 400 day
moving averageUS Treasury Yield curve inverts52 week lows exceed highs by
considerable margin
Time to be on guard!
FTSE 100 in early 2008
FTSE 100 in early 2008
Moving averages cross!
US Treasury Yield Curve in early 2008
US Treasury Yield Curve in early 2008
Rising slope good for future but not for present!
52 week highs & lows in early 2008
52 week highs & lows in early 2008
Bear market!
Dealing with 2008Crossing moving averages were a sign to
get outUS Treasury Yield curve had already
signalled inversion52 week lows > highs had already
signalled bear market
I sold considerable holdings in March 2008 as a result
How to monitor on a monthly basisSet up charts on FTSE 100 via
www.digitallook.comGet US Treasury data from
www.treas.gov/offices/domestic-finance/debt-management/interest-rate/ and plot on spreadsheet
Get 52-week highs & lows from Financial Times each week and plot on spreadsheet
How to find out moreGo to www.investmentbarometer.co.ukMore detailed information on market
monitoringMarket update service available
© Mark Leitchwww.investmentbarometer.co.uk
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