Fabian Says Sell Again

06/18/2008 12:00 am EST

Focus: BONDS

Doug Fabian

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

Doug Fabian, editor of Successful Investing, who advised selling everything in January, recommended buying stocks in May and now thinks it's time to sell again.

It's been a volatile last six weeks in the equity markets. [About] a month ago, our Domestic Fund Composite (DFC) closed above its 39-week moving average, giving us the green light to allocate to equities with a portion of our portfolio.

On Monday, May 19, we established our position in the S&P 500 Depositary Receipts (Amex: SPY). Unfortunately, the market decided to make a break for the down side in the weeks that followed, and the DFC fell below our preset 5% stop loss. 

In my opinion, what's happening on Wall Street is the clear realization that a recession now is an undeniable reality. There was so much talk-and hope-that we weren't going to have a recession during the past few months, and that hope is what I think held the market up through April and early May.

The S&P 500 index now is trading below both the 50- and 200-day moving averages, a clear sign that the bear is back in town. So, as they say in the investment game, don't fight the tape. Sell SPY and protect yourself from any more selling in the overall market. You should put the proceeds of this sale into the money market (cash).

Your new allocation should be 15% SPDR Lehman International Treasury Bond (Amex: BWX), 10% iShares Lehman 20+ Year Treasury Bond (NYSEArca: TLT), 25% iShares Lehman 1-3 Year Treasury Bond (NYSEArca: SHY), and 50% money market (cash).

Now, let me make the following suggestions.

First, lower your risk. I think right now you should have no more than a 30% allocation to equities. If you are a more conservative investor, you may want to go completely to cash and wait out this market storm.

Second, take steps to lower your fees by moving your money out of high-cost mutual funds, big brokerage companies, expensive annuities, and other financial vehicles sucking up your net worth with their high fees.

It's hard to stay positive when the market is tumbling, but if you take the necessary steps to protect your money, you'll feel a lot better about your financial situation, not to mention the fact that you'll be a whole lot richer.

I think it better to rotate out of all positions now and wait for a better buying opportunity.

When might that buying opportunity come?

Well, first we must see stocks move above both their 50- and 200-day moving averages.  When that happens, we'll have a good idea that the right buying opportunity could be close. 

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