The table has been updated. Bond index added.

All funds remain on Sell. Bond portion of my account just made 5% year to date.

I know I should have added to bonds long ago. I'll talk about that when we discuss asset allocation and scaling.

I have no chart for the fund I hold, so I added Barclays to the table as an orienter. The chart is beautiful. I may adjust parameters to allow it some more room.

The table has been updated

All funds remain on Sell signal, two approaching their reversal points: Morgan Stanley International (MSIQX) and Vanguard Target Retirement (VTINX).

Is this a good point to sell and raise cash?

I was asked today whether it is a good point to sell mutual funds in 401K and go into cash?

Before I share my view I have to remind you that I am not a financial advisor and what I write here is just my personal opinion and not an advice to buy, hold or sell any security whether in a retirement account or otherwise.

I see I need to put up a disclaimer, I will as soon as I can.

Having said that, my short answer is NO. Before I provide a long answer I need to disclose  that I have sold ALL mutual funds back in May based on the signal of the trend model I am using. See a table here: Current signals

Why is that I would not sell today? Cause it would have been more of an emotional decision than one based on a systematic approach. The whole idea of this blog is to offer a rational approach to managing a retirement account that does not offer too many choices. The approach is to follow weekly trends an manage the risk through an appropriate position size (will talk more on that).

I am taking the question I was asked as an opportunity to illustrate my point that if there is no system in place then we put ourselves in a very difficult position where we worry all the time and try to make decisions based on probabilities. It is still possible but it is not the game most of people like playing.

What an S&P chart shows is that the market is still retracing the plunge from the April high.We talked about that - see this post. It will be difficult for the bulls to drive this market higher being pressured by overhead resistance (see below), yet they managed to break above 1110, and we have to respect the fact.

This ~1110 area now acts as a support while ~1130 area is a resistance cluster (pointing down 50 day EMA is 1120, 50% retracement is 1130 and 50 day SMA is 1140). One important warning sign I want to mention is declining volume. If S&P breaks down below 1110 I'd get out. Until then I'd stay in selling portions of my position into any rally as we get closer to 1140.

To summarize, trading is a difficult and emotionally demanding game most people do not want to be involved with. I devote my time to this blog with intent to offer a simple (it is actually a bit simplistic) approach to managing retirement money; this approach is about following the trend via utilizing a mechanical system and managing risk through position sizing. This approach is not popular among financial planners and somewhat  contrary to what they advice.

Phil Grande one more time

Could not help posting. Phil talks Pelosi, Reid, Meg Whitman, Boxer, exporting jobs, Larry Summers, Wall Street and the market.

Phil Grande radio show June 8, 2010

Protecting Your 401(k) When Markets Tumble

I came across this article that is a good example of what we are being told. The author is a "markets and investing writer for Daily Finance. He spent 13 years covering investment and business news".

I did not expect this Stay Fully Invested advice in an article with Protecting Your 401(k) When Markets Tumble title. Did you?

A recent article on trend following

Just wanted to share a link to an article. Notice that the article in turn offers links to related subject, in particular position sizing and money management.

S&P

Just to be objective, we have to admit S&P weekly looks rather bullish than bearish after somewhat     decisive bounce off of its 105 support. I say "somewhat" cause the move was on a light volume.

That been said, our weekly model remains on "sell" signal, and I am going to stay in cash.

It is not to say the bounce is not "tradable". If market remains bullish for a while we may see SPY as high as 115, but it needs to break above 111 first. It is worth mentioning that potentially it may form the right shoulder of the H&S pattern. I'll talk more on that if things develop in this direction. Below is a daily chart.

Phil Grande on 401K

I am a fan of his. Yes, I know that he often gets too grumpy. I do see his limitations if I may say so. Yet I respect the man. Anyway, here is his radio show dedicated to 401K plans (June 1, 2010).
Phil Grande radio show June 1, 2010

Trend following

Here is a definition of trend following from Wikipedia:

"In finance, trend following is an investment strategy that tried to take advantage of long-term moves that seem to play out in various markets. Traders who subscribe to a trend following strategy do not aim to forecast or predict specific price levels; they simply jump on the trend and ride it."

This is a very informal interpretation, but it serves the purpose. What we attempt to do is to participate in long-term moves without predicting, we "simply jump and ride".

To illustrate that it is possible, here is a link to one of the most famous study on trend following by Col Wilcox and Eric Crittenden that they titled  Does Trend Folowing Work on Stocks?