The Average Investor's Blog

A software developer view on the markets

The Weekly Update

Posted by The Average Investor on Aug 7, 2011

A dark-red week for all markets. The worst weeks since the financial crisis of 2007-2009.

All indexes are below their 20-week MA as of Friday (the S&P 500 and the Emerging Markets closed below their 20-week MA the week before). From my understanding of the Dow Theory, based on Schannep’s interpretation, we also had a sell signal triggered at Tuesday’s close. The S&P 500 also pierced decisively below its 200-day MA. All in all a screaming “out-of-the-market” situation.

Only the long-term monthly moving averages (10-month for instance) haven’t yet indicated a sell, but that’s only due to the fact that the position is re-evaluated only at the end of each month. The S&P 500 closed July slightly above its 10-month MA, thus maintaining the long position, and dipped below it on the first day of August. Interesting to see whether this long-term MA will save us from a whipsaw or is going to trigger a delayed, and more painful, sell.

With all the problems in Europe, and especially with the US downgrade, it is hard to concoct any near-term trigger for a bullish sentiment, but markets are full of surprises. In any case, it looks like a vicious bear is on the lose, at least for the time being.

The ARMA strategy was long for the entire week and it suffered the same fate as the S&P 500. At 2.23% for 2011 it’s still in the green for the year, but that can easily be reversed on Monday, which is likely to be a down day and the indicated position is still long. The ARMA strategy is contrarian to a degree and has problems understanding a series of severe down days.

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