How to protect your investment portfolio in a downturn

AVOIDING THE ABYSS

Aim is to equip you with techniques toRecognise the start of a downturnDistinguish a bull market pull back from a

downturnMonitor the market on a monthly basis

Consider FTSE 100 over last 15 years

Consider FTSE 100 over last 15 years

Since 1995 FTSE has been range bound

Consider FTSE 100 over last 15 years

Since 1995 FTSE has been range boundLikely to continue for several years!

Use simple moving averages to indicate trend

Use simple moving averages to indicate trend

100 day and 400 day simple moving averages help identify bull and bear phases

But one indicator is not enoughMoving averages usefulBut can lead to false signals

Need to correlate withUS Treasury Yield Curve52 week highs and lows

What is the US Treasury Yield Curve?It is the difference (or spread) between

The yield on a 10 year US Treasury Bond andThe yield on a 3 month US Treasury Bond

What does it mean?Rising slope = improved market expectations

Yields rise as maturities lengthenConfidence in a growing economy

Falling slope = worsening market expectationsYields start to decrease as maturities lengthenWaning confidence in economy

Negative = “inverted yield curve”Short term yields higher than long termExpectations of market decline

Consider US Treasury Yield Curve

Consider US Treasury Yield Curve

Beware inversion points!

Consider US Treasury Yield Curve

200 points long term average

Consider US Treasury Yield Curve

200 points long term average

Above “good”

Below “bad”

What are 52-week highs and lows?Simply the highest or lowest closing price

for a share over 52 weeksNormally counted for FTSE 350 shares

What does it mean?When number of highs > number of lows

Time to buy the marketWhen number of lows > number of highs

Time to sell the market

Consider 52-week highs and lows

Consider 52-week highs and lows

Bear market

Putting it all togetherConsider 2007 – 2008 periodExamine each chart in turnRerun history

FTSE 100 in summer 2007

FTSE 100 in summer 2007

Moving averages still bullish

US Treasury Yield Curve in summer 2007

US Treasury Yield Curve in summer 2007

Beware inversion!

52-week highs & lows in summer 2007

52-week highs & lows in summer 2007

Beware lows > highs!

Summer 2007 warning signsFTSE 100 dips briefly below 400 day

moving averageUS Treasury Yield curve inverts52 week lows exceed highs by

considerable margin

Time to be on guard!

FTSE 100 in early 2008

FTSE 100 in early 2008

Moving averages cross!

US Treasury Yield Curve in early 2008

US Treasury Yield Curve in early 2008

Rising slope good for future but not for present!

52 week highs & lows in early 2008

52 week highs & lows in early 2008

Bear market!

Dealing with 2008Crossing moving averages were a sign to

get outUS Treasury Yield curve had already

signalled inversion52 week lows > highs had already

signalled bear market

I sold considerable holdings in March 2008 as a result

How to monitor on a monthly basisSet up charts on FTSE 100 via

www.digitallook.comGet US Treasury data from

www.treas.gov/offices/domestic-finance/debt-management/interest-rate/ and plot on spreadsheet

Get 52-week highs & lows from Financial Times each week and plot on spreadsheet

How to find out moreGo to www.investmentbarometer.co.ukMore detailed information on market

monitoringMarket update service available

© Mark Leitchwww.investmentbarometer.co.uk