“Most global stock indexes have decisively broken below their 200 week moving averages, which is a major trend reversal. The intermediate term (3 month) and long term (12 month) model forecasts point down. We recommend taking advantage of every minor rally to close long positions, go short and shift out of tech and cyclicals into defensive groups. Stock indexes haven’t yet had the big surge in volatility (5% daily NASDAQ moves down and up amidst a declining market). That is probably approaching. Bear market trading is typically more productive selling into those big percentage bounces, rather than selling into big declines and then watching the market bounce back in your face.
Potential downside targets after a 200 week average breakdown are 1) the 200 month average and 2) The previous 2002-2003 lows. Those levels are 25%-47% below current levels for most stock indexes. U.S. financial indexes are already there (BKX, XLF). So don’t think it can’t happen for the broader market and other currently elevated indexes, stocks and groups.”
The Belkin Report
July 6, 2008