Take a look at the following chart of the S&P 500...
Observe its 200-day moving average (the gold line). This simple measure is something you will want to follow from this day forward.
Now, as you can see, late in 2000 the S&P 500 fell below its 200-day moving average. No big deal, right? This same thing happened many times before. However there's one big difference. In late-2000 the S&P 500's 200-day moving average turned down.
If you had switched your 401(k) investments out of the stock market when this happened, and moved your savings into a safe money-market fund, you would have avoided the deep losses millions of unaware retirement savers suffered in the 2001-2002 period.
You should follow the 200-day moving average to track the progress of any security whose performance affects your financial future — be it a stock, a mutual fund, or an ETF. Apply it to those choices your 401(k) plan offers for investing your savings in stocks.
It is "common knowledge" stocks are risky investments. But how risky are they, really? There is one good reason you want to know the answer: stocks are where the money is at!
Truth is, though, risk does not press upon the stock market with any measure of consistency. For example, the risk of a far-reaching financial crisis, or some great economic calamity is not ever-present. Instead, risk in the stock market waxes and wanes. Sometimes it is heightened and sometimes it is restrained.
The value of following the 200-day moving average applied to any security or even the entire stock market is it can alert you at moments when risks of steep declines are becoming elevated. Times like these you must act to protect your retirement savings. Get out of stocks and park your capital in a money market fund your 401(k) plan offers.
Now, just look how much the S&P 500 has risen since 1982: 1400% in just eighteen years is a record! This never has happened before. Of course, the stock market could continue its record rise. Then again, structured finance — the Wall Street credit machine equipped with an infinite multiplier inflating the real estate market like there's no tomorrow — could break down. Then what? Everything that has been lifted by free-flowing credit suddenly is at risk of falling apart.
The stock market largely has risen these past few decades because credit has been massively inflated. In fact, these days it takes more and more credit just to keep everything levitated. Finance has become a giant confidence game. You might not understand the risk in this, but you can be sure others do. Human emotion being what it is, it's only a matter of time before fear sets in and upsets the applecart. The stock market will be put at great risk.
Listen, I am not projecting anything new here. The stock market is an EKG machine showing the beating heart of greed and fear over many decades. And seizures are something quite natural in the realm of financial history. So beware, particularly right now. Keep your eye on the 200-day moving average.
