Bear Alert

It’s time to take a look at the big picture. The Dow Jones Industrials Average (^DJI) has been running up quite consistently since its 2009 low, with one break in the summer of 2010 (sell in May and go away?). Now the 200d moving average (green) looks to be accelerating up to cross above the falling 50d (red) in a couple of months. This could indicate another summer of sideways or downward prices will soon be upon us.

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The S&P Toronto Stock Exchange Composite Index (^GSPTSE) is displaying a similar pattern to the Dow, but the cross seems to be coming sooner, perhaps in a month. (Note that the line colours are reversed in this chart.)

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So, if we want to lessen our exposure to North American stocks, where do we put our money? Bonds, of course (thank-you, Benjamin Graham). The iShares DEX Universe Bond Index (XBB.TO) looks like it’s ready for the 50d moving average (red) to cross above the 200d (green) in a couple of months, which is a bullish indicator for bonds.

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The bottom line? I will keep watching these three charts and, if the moving averages cross as expected, I will increase my bond holdings from the current 30% of total portfolio value.

POSTMORTEM

I predicted a bearish period. More specifically I predicted the the 50d and 200d moving averages would cross downward for the Dow (^DJI) and the TSX (^GSPTSE), and cross upwards for the DEX (XBB.TO) within two months. Now it’s July 19th 2011 how did my prediction work out?

The TSX did indeed cross – right on the two month mark.

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The DEX crossed upward way ahead of my two month deadline. This is great as I moved to 40% bonds in mid-June.

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The DOW did not cross. It has been a very choppy couple on months for the DOW and the moving averages have converged but not crossed.

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UPDATE

The DOW did eventually see its 50d and 200d moving averages cross in late August 2011.

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