TIME TO INCREASE YOUR MARKET RISK?

“Risk is good. Not properly managing your risk is a dangerous leap.” 

                                         – Evel Knievel, Motorcylist

 

Many market pundits and gurus believe the financial markets are at risk of a market correction (defined as a 10% decline or more). That may happen, but let’s pause and see where we are today. The largest ETF (ticker: SPY) has remained within this trading channel all year long.

SPY 08-06-14Price action of SPY year-to-date (8/6/14), the most widely held ETF which tracks the S&P 500 Index

As a matter of fact, if we zoom out and review the price action for the last two years, SPY has not yet broken this channel to the downside yet.

SPY 2 year 8-6-14Price action of SPY two years prior as of 8/6/14, the most widely held ETF which tracks the S&P 500 Index

We are precipitously close to challenging the downside of this channel. If that happens, a defensive posture is best. As you can clearly see, technical analysis helps us make a better determination about the price action of stocks. It also helps remove the panic and high emotion of investing which can create costly errors to your portfolio over time. Respecting this major upward trend is wise but being nimble and prepared to adjust portfolios will mitigate unnecessary risk.

 

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