Portfolio Update

Is the equity market back on firmer footing?

disclosed having bought the Cambria Tail Risk ETF (TAIL) on October 22nd for clients upon the S&P 500 having closed below its 200 day moving average (DMA) for a second consecutive day. Today was the second day that the S&P 500 closed back above its 200 DMA so late in the day I sold TAIL. It was a loss of $0.55/share which I would say is very cheap insurance.

We still have AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL) and the Pacer Trendpilot Large-Cap ETF (PTLC) which will probably still be in defensive mode for a few more days. As I always say, there is no way to know whether a given breach by the S&P 500 of its 200 DMA will be serious or not which is why I start taking defensive action slowly. Bear markets have the historical tendency to start slowly, giving plenty of time to get out. I don't believe in literally getting all out but adding a few of the things we have been talking about since 2004 here (inverse funds and the right type of alternatives) combined with just a few sales can be effective in avoiding the full brunt of the ultimate decline.

BTAL has generally been rising in all markets lately due to what I believe the fund capturing a rotation out of higher beta names even as the market goes up. PTLC will have only been defensive for a couple of weeks assuming the SPX stays above the 200 DMA.

If the market's deterioration had continued I believe I'd have bought a true inverse fund before selling anything (TAIL uses put options) and eventually would have sold a few holdings. The goal with crucial turning points is to not get whipsawed because a turning point might turn out not to be crucial. It is too early to know whether this current one is a big deal or not and I am not worried about trying to guess because more important than anything else is sticking to my investment process.

I was happy with how TAIL acted and would prefer to use it again as a next step instead of an inverse fund so long as the next breach clears the time needed to avoid wash sale problems.

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