After a wild day in the markets yesterday, Mario Draghi, president of the European Central Bank, was at center stage this morning. What he said was almost incomprehensible to most people, including me. The clear takeaway was that European interest rates will not be going higher anytime soon. He was also asked what instruments the ECB have left to fight the current impasse in the markets. His answer was classic mumbo-jumbo Central Bank talk and did not address the question at hand.
It seems to this observer that the ECB and the Fed are literally out of ammo and have no clue what to do next. Fed chairwoman Janet Yellen's decision to raise interest rates here in the United States was, in my opinion, too late to have the desired effect. Should the markets head south as it looks like they may be doing, does the Federal Reserve have a backup plan or do they move rates back down again to stimulate the economy with another QE?
I probably sound a bit like a broken record, but the reality is many of the world's markets, from Europe to Asia, are now officially in bear markets. An official bear market is when an index drops over 20% from its highs. However, I prefer to use our Trade Triangles to confirm when we are in a bear market.
A common question we have had on the blog is, "what do I do with my money when all this is happening?" If you're not comfortable taking short positions, having a position on the sidelines is not a bad place to be. Holding cash or a short-term money market instrument that your broker can put you in, is a position in and of itself. You do not always have to be in the market long or short, sometimes being on the sidelines is the smartest place to be.
That was the case in 2008 when our model "Perfect ETF Portfolio" showed a positive return of 12.8% by exiting the market and staying on the sidelines. Remember 2008 was the year that most investors ended the year with losses of 20 to 30%.
In today's video, I am going to be looking at how you can find short-term support and resistance levels in the markets. This is something I have never done before and I think you will find it interesting.
Stay focused and disciplined.
Every success with MarketClub,