A Season For Selling

08/15/2007 12:00 am EST

Focus: MARKETS

Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and ETFU.com

Doug Fabian, editor of Successful Investing, can’t say it any plainer. Here, he issues a dire warning for subscribers to bail out of the market…

Let me start by saying that I am sure glad we are 100% cash right now! And, for those of you who are still clinging in vain to the old Hebrew adage “this too shall pass,” I recommend you disabuse yourselves of that childish investing notion and get out of equities right quick.

A couple of weeks ago, I told you that after the bloodbath we witnessed to close out the week, that the market was still very unstable and that the worst was not over for equities. I also thought that we were likely to get a bit of a bounce in stocks going into the next week. Well, we did get a nice bounce at the beginning of what would be a very volatile week. However, in the final two hours of that trading week, the complexion of this market turned from light green to ruddy red.

The big sell offs were due to “turmoil in the credit markets”—the “big problems with subprime mortgage sector,” and it is something I’ve been warning you about for months. 

So, where do we go from here? First, you should be completely out of stocks right now. Second, you should know when, precisely, we plan to get back into equities once this market settles.

We are now officially in a Sell with respect to the Fabian Plan. According to the rules of the Plan, when the market first gives us a Sell signal, we place “collars” around the Domestic Fund Composite (DFC). These collars are set 5% above, and 5% below the DFC’s 39-week average as of the day the Sell signal went into effect. 

That official Sell day was Friday, July 27. On that day, the DFC’s 39-week average was 199,917.85. Using this number as our benchmark, the 5% upside collar was set at 209,913.74, while the 5% downside collar was set at 189,921.96.  We will use these collars in the following way.

First, if the DFC were to move above the upside collar of 209,913.74, we will be back to a Buy in equities. If, however, the DFC were to fall below the downside collar of 189,921.96, that would in effect “reset” our plan, and we would do away with the collars and use only the 39-week moving average as our trigger to move in, or stay out of stocks. 

Over the next few weeks we’ll discuss in greater detail where the DFC is with respect to the collars, and what we will do if and when the collars no longer become necessary.

For now I want you to stay calm, get yourself in cash, and watch the action unfold from the comfort of the money market.”

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