401 Monthly Analysis - Yellow light 6/2/12

The monthly analysis I do on my two 401K funds continues to show a cautionary outlook but refuses to fully abandon stock funds. Goes to show how slow the turning momentum is for a monthly analysis. It feels like Rome is burning already based on recency, Friday’s 274 points drop on the Dow and the huge 79 points drop from the Nasdaq.  I felt a slight fear after the losses. VIX, the volatility or fear index is rising and I can feel it in my pores. Fortunately, my portfolio saw a very small loss; and this time my wife said “looks like you were able to hedge the market drop pretty well”. Not too often do I get a compliment like that from the boss… I was expecting a large drop after last week; but the hedges really neutralized the losses.

Can’t help but wonder what JP Morgan Chase was hedging in London and how they lost $3 Billion on a hedge without showing gains on the primary article traded?

In my current employer’s 401K, I am dropping Royce Opportunities and Fidelity Blue Chip growth and going to 50% Fidelity Government Income Fund and 50% Money Market/cash funds. I am still showing Fidelity Blue Chip Growth as a hold but letting my weekly technicals bias me towards getting out of Blue Chip Growth.  I will have to wait a few days and do it later this week so that I get past the Fidelity 30 day hold rule. Also the weekly chart on Royce Opoortunities is very oversold and will probably see a bounce. Not sure if I should hold out for that. These are hard to time and can cause more pain than gain. See charts attached. If one wanted to distribute the stock holdings further, the Fidelity Fund or the Fidelity Puritan Funds would be choices; but for now I will opt for conservatism and get out of these stock funds. The Fidelity Government Income Fund is a nice choice for a Bond fund. See chart attached. It runs in the opposite direction to stock funds. I will be placing my orders this week to make the swap.

As for my previous employer’s 401K funds, I will move from a 65:35 stock: bond fund holding to 50:50. The two funds I will be in for the stock funds will be Mt Vernon Growth and Artisan Mid-Cap Fund (not the Artisan Value). The two Bond funds that I will hold will be PIMCO Real Retn Admin and Fidelity Government Income.

As I look at my methodology, I am going to combine my monthly analysis along with the weekly technical analysis charts like those attached below. I think I can react faster to changing market conditions that way. If the signal is exit on the chart, then I will stay out even if the monthly momentum analysis says stay in. I am a loss shy kind of person and will give up some gains to avoid losses. Keep in mind that stocks drop 2-3 times faster than gain.

I am still hedging my long stock funds with SPY put options in my Rollover IRA. This month, they have certainly helped neutralize my losses. But that is not good enough.

I don’t want to just cut down on losses. I want gains.