Fast Forward

Let me fast forward the previous chart set in 2001 – 2002 in my last blog to the last several years, 2004 – 2011. The chart itself is a weekly chart of ARTQX, Artisan Mid-Cap Value mutual fund. It is one of the choices I have in my 401K portfolio with the last company that I was with. The smooth blue line close to the jagged price line graph is a 9 period exponential moving average (EMA), the orange line a 50 period EMA and the green line a 89 period EMA. Here each period is a week.

It becomes abundantly clear that if one was invested when the line graph representing the mutual fund’s price was blue, one would have left many of the recession headaches behind, and enjoyed the lengthy Bull Run upwards. Price drops very fast. Usually price drops 3 times as fast as it climbs up. When the price line turns red, pull your money and put it in a safe haven like a money market fund or some other mutual fund that is blue. Each line is drawn week-to-week and there is not much time to hesitate. In 2008 if one hesitated after the price graph turned red, then severe losses could have occurred. One could easily see a 15-25% drop in fund value.

If the price line graph is blue, then invest long in the ARTQX Mid-Cap Value fund. Usually that would probably be a bond fund like the Fidelity Govt Income fund, which can behave contrary to the equity type funds. Nothing is guaranteed and it is best to actually see the fund with the trading system. I am currently invested in one of the Artisan Mid-Cap funds in my own 401K portfolio.

There are no guarantees as to how long the price line graph will stay blue. We are overdue for a correction. The current bull run began last September and it may very well be time to pause and take a breath. But if I use the simple rule of staying long when blue and getting out when red, the system would take care of letting me enjoy the lengthy bull runs upwards, and cut my losses quickly. It is likely that I will get whipsawed sometimes. That is also part of the reality in investing.