Sunday Morning Coffee

About a week ago as you probably are aware the 50 DMA of the S&P 500 crossed below the 200 DMA. While the importance of this has been debated, if the market is on its way to down a lot then the crossover serves as a confirmation of the 200 DMA breach from a couple of weeks ago.

As of Friday's close Stockcharts.com has the 50 DMA at 1100.30 and the 200 DMA at 1111.58.

We sold Walgreen (WAG) as a result of the crossover.

I mentioned to a client that during the last go around the small position in SDS grew to hedge a much larger portion of the portfolio as the market kept going down. That combined with only a few sales went a long way to achieving the objective which as stated many times before is to avoid the brunt of down a lot.

Down a lot does not result every time the S&P 500 goes below its 200 DMA but for every down a lot there was a breach early on. The current breach will result in down a lot or it won't. As this is unknowable ahead of time the ultimate knowledge of whether another large decline is coming or not means this trade was either the correct thing to do from the top down or it was an error on the side of caution.

One other related point is, and this is a repeat theme, that the panic is over and at this point for now I think is more about the reckoning of all of the problems, excesses and so on. To the extent the newness and unknown are less than before then I think that argues for any subsequent decline to be less than going back down to SPX 666, which was the March 2009 low, regardless of whether it scares the hell out of anyone or not.