ITA Wealth Management

Mid-morning, check each of your stocks, index funds, or ETFs using this StockChart graph. The reason for waiting until after the market has time to respond to the Asian markets is that it will give you a better sense of the direction this market may move over the next few days.  If you are fully invested, stay the course.  If you have cash available, check to see if any asset classes are under target.  Pay particular attention to the index funds or ETFs of those under weighted asset classes.

Assume, for example, your portfolio is under weighted in Small-Cap Value.  The ETF I use for this asset class is VBR.  I go to the StockCharts VBR graph and I see every graph is negative with exception of the CMF or bottom graph.  I am waiting for the 13-Day Exponential Moving Average (EMA) to move from below to above the 26-Day EMA.  Watch for this action in the top graph.  That will be an important move when that happens.

Next, look for the RSI graph to move from below to above the 30% line.  This could easily happen this week.  And then as confirmation, watch for the MACD or third graph to go positive.  The histogram bars will move from negative to positive when this happens.

Don’t be surprised if all four indicators turn positive (one of the VBR indicators is positive) and then go negative as the market tests or establishes new lows.  This is known as a whipsaw.  An asset class such as VBR may begin to move up and then suddenly swing down again.  With the broad market already down 40%, we must be very close to a market bottom.  I don’t see it dropping much more than another 10%.  However, it is anyones guess as to what will really happen until the credit markets begin to unfreeze.

Getting back to our Small-Cap Value example - buy your VBR ETF in increments as you bring this asset class back into balance.  If you have more than one asset below target, and this is almost sure to be the situation, buy a few shares on alternate days as you gradually repopulate those asset classes that are below target.  Purchase sufficient shares so your commissions stay below 1%.  The lower the percentage, the better.

Don’t be in a big hurry to buy as we may not be at the bottom of this market.  If the market moves up and then turns back down, just relax before making your second round of purchases.  Wait until the indicators discussed above again turn positive and then repeat the buying process.

Lowell Herr

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