Safe to Invest ?

July 20, 2013

Each week, or, as often as useful, I will record for reference purposes,  the positioning of  the closing prices of some major ETFs in relation to their 200 day moving averages.  What I want to know is how much I would lose if I invested 100% of my investment capital and, the ETF retreated to its 200 day support line and, I sold out, as my trend following strategy requires.

My only way around all this, is to invest nothing and wait until the ETF price negatively penetrates its 200 day support,at a month end, and then, at a subsequent month end,  re-emerges above its 200 day moving average resistance . and go ” all in “….OR,

Dollar Cost Average into a position over a period of months, understanding I’d sell everything at the negative penetration,  and then go ” all in ” at a month end 200 day positive re-emergence.

I’m following the dollar cost averaging strategy.

Symbol                                        VTI                        SPY      

Price ( July 19 )                         $87.53               $169.17

200 DMA price                           $77.87                $151.24              

 % above 200 DMA                     12.4%                 11.85%             

Loss per $ 100,000                  $11,036                $10,597

 

Symbol                                        QQEW                 XLK

Price  (  July 19 )                      $32.01                 $31.45

 2oo DMA price                          $28.03                $29.83

 % above 200 DMA                     14.9 %                5.4%

 Loss per $100,000                   $ 12,433             $6,424

 

Symbol                                           GLD                     XLE

 Price ( July 19 )                          $125.11               $83.72

 200 DMA price                           $151.38                $75.81

 % above 200 DMA                 (    17.35 % )            10.4%

 Loss per $100,000               $20,989 profit        $9,445 

 

I’m not investing in GLD now  with the hope of profiting  $20,989  should GLD  re-test its $ 151.38 moving average.  I have no idea how much further GLD will fall, but I have a reasonable expectation, based on back testing, that if GLD successfully re-emerges above $151.38, I’ll be in sync with a positive trend.  At that point I would consider opening  a GLD position equal to 15% of my investment funds ( maybe more if SPY / VTI are not in play )

Also, please notice that the potential loss, at this point, of QQEW ( Nasdaq 100 ) which contains lots of big cap technology, is substantially more than XLK (  pure technology )

Richard Maurice Gore

 

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