Further Defensive Action Initiated

The recent deterioration in the market has prompted defensive portfolio positioning.

Near the close on Monday as it was appearing that the S&P 500 would have a second consecutive close below its 200 day moving average I placed a defensive trade for client portfolios. I've written countless posts about using the 200 DMA as a trigger to take defensive action and a second consecutive close below is specifically when I initiate action.

Back in May, in a similar market situation I bought AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL) for clients which has worked out well. Since then I've mentioned a couple of times that the 200 DMA breach in May might not have been very serious but perhaps it was. It could have all been part of a long topping process which would be consistent with previous bear markets, they usually take quite a few months to unfold. Note that I differentiate bear markets as a slow rolling over into protracted, serious declines as opposed to crashes or fast declines which are far less serious. The crash of 1987 bottomed just six weeks later.

To the trade then, I bought Cambria Tail Risk ETF (TAIL) which owns put options on the S&P 500 (along with US treasuries) for clients at about a two percent weighting. I've had this fund in mind as a possible tool for the next bear market and while I do not know if a bear market is starting now or not, I believe TAIL along with BTAL, our gold ETF and the Pacer Trendpilot Large Cap ETF (PTLC) is a good start for protecting client portfolios.

If the market deteriorates further then I can consider selling some positions and perhaps add an inverse index fund. TAIL is kind of an inverse fund conceptually, even if not precisely.

At any point in time there are positives and negatives the potentially could move markets. Part of the negative argument right now includes deterioration beneath the surface of the S&P 500 (a lot of stocks are down a lot), the fact that the index is below its 200 DMA even if just for a few days and from a macro standpoint markets might be worried about interest rates (arguably a perpetual worry) and tariffs.

As I usually say, the current list of risk factors confronting markets will either turn out to be serious or they won't but my process is to take incremental, defensive action for clients when the index breaches its 200 DMA and that is exactly what I have done.

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