In the Auxan Capital style of wealth management, we have many strategies, one of which is a Sector Rotation system. Our approach is to purchase three sectors or countries each month out of a basket of 40. The sectors we purchase are determined by a series of four technical analysis indicators. As I get the signal, though, I can’t help but consider what fundamental or economic scenario might be setting them up for success. For the month of September, our Sector Rotation system is moving into defensive mode. It is invested 50% in the ProShares Short S&P 500 inverse fund (SH) and 50% in cash. If you prefer not to use inverse funds, consider buying treasury bonds as a hedge instead.
There are times when a 10% pullback looks like a buying opportunity, and there are times when it looks like the beginning of a new bear market. We think this pullback in recent weeks looks more like the latter. Here are a few reasons:
1. In July the S&P quietly broth through a long term trendline established since the 2009 bottom.
2. The S&P broke through its trending channel and has pulled back to test the resistance. It has been met with heavy selling every time it peeks into the 1980-2000 range.
3. On Aug 21st the S&P broke through its 350 day moving average, which has been an excellent litmus-test as to whether the market is in a bull market or bear market. Now that it is below this line, odds are much higher that we are in the early stages of a bear market.
4. On Aug 20th, the S&P completed a Head and Shoulders pattern that had been developing over a 6 month period. This pattern commonly occurs at key […]