It occurred to me that there's a better way. It's very simple and removes the emotion from your decision and allows you to rationally make these moves. Best of all, you can do it yourself. If involves finding a free web site on the Internet where you can put together a daily chart of the S&P 500 and add two exponential moving averages. Then you simply check your settings say, three times a year at the most and more when certain events like perhaps a riot in a few middle eastern nations or something similar and you can determine all you need to make an informed and rational decision on how to protect your 401k from the inevitable decline that is a virtual certainty. Someday.
You will need to find a good web site, preferably one that is free that can draw a chart that is similar to this one. I'll tell you how to do that in a minute.
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| Weekly chart of the S&P 500 with 10 week and 40 week Exponential Moving Averages (EMA) Click to enlarge - http://www.freestockcharts.com/ |
As you can see, over the last 8 years, there have been three sell signals - where you move the assets in your 401k to a money market option and three buy signals, where you move them back into your preferred investments. When the 10-week (50-day) moving average (the red line) crosses over the 40-week (200-day) moving average (the blue line), you have what is known as a golden cross and it is a bullish signal. Conversely, when the 10-week moving average crosses under the 40-week moving average, it is known as a death cross and it is a bearish signal. You can do an Internet search on those keywords to find out more.
So what does this chart say now? It says sit tight and enjoy the Benron Bernanke money laundering scheme that is propping up the stock market, at least until May when the current QE2 ends. Then we should be merrily on to QE3 or something similar that will bail out the states. Or Europe, whichever comes first. The angle (pretty much straight up) and the degree of separation between the two moving averages pretty much assures us that your investments will keep on ticking for a while longer.
To set up your own chart, here's all you need to do:
1. Go to http://www.freestockcharts.com/ and sign up for a free account. They are the best I've seen for free and better than some you might pay for.
2. Log in so that you can save what you'll be doing.
3. In the upper left corner, click File and then click Create New Layout. (You can hover over the border of the left pane and drag that view to the left to give you more chart room.)
4. Close the lower chart - the volume indicator. You don't need this.
5. Type "SP 500 Standard and Poors" and a dialog box will come up. Sounds strange, doesn't it? Really, all you do is simply type - but the web page must have the mouse focus. It works. Select "SP 500 Standard and Poors"
6. In my example, the chart defaulted to a 10-minute time frame. Click the 10 Minute drop list, or whatever time frame yours defaults to and select Weekly.
7. Click the Add Indicator drop list and select Moving Average.,
8. A dialog box appears with Price History as its only content. Select Price History. (By selecting Price History, you are attaching your new moving average to the price.)
9. The moving average defaults to 50. Click on Moving Average 50 and select Edit.
10. Change the Period to 10 for 10 weeks. Also change Average Type to Exponential. You might also want to change the color as well.
11. Click OK and repeat for the 40-week moving average. If you didn't change the color for the 10-week, you should change it for the 40-week.
12. Click File, then Save Layout and give your new chart a name. (It's also fun to play with it and make the colors the way you want. Click the Draw button and see all the fun little drawing buttons they supply.)
There. In 12 easy steps (I'm smiling at that one...) you have now created a tool that allows you to determine the easiest and arguably one of the best ways to protect your hard-earned money. And it's much better than listening to me!
Happy analyzing!
