# risk-on/risk-off economic indicator is now flashing yellow



## Senile_Texas_Aggie (Feb 6, 2019)

I don't know if this forum is an appropriate place for this or not, but I happen to believe that there are several folks here who also have outside jobs and either have 401(k)s, 403(b)s, and/or IRAs in which they are saving their money and who may benefit from what I am about to share.  If so, I would like to tell you of an economic indicator that I first learned about Feb 2018.  I read about it on the investment blog https://investingforaliving.us/ that Paul Novell writes.  It is his post of May 03, 2016.  There he discusses a paper written by the folks at Philosophical Economics dated Feb 21, 2016, found at the following URL: http://www.philosophicaleconomics.com/2016/02/uetrend/.

The paper discusses how the use of the unemployment rate trend (<- key word) has been remarkably accurate in correctly forecasting actual recessions, i.e., no false negatives since 1945.  It has been less accurate in avoiding false positives -- sometimes it forecasts a recession that does not develop.  Thus the addition of a second filter for risk on/risk off is added: the current value for the S&P 500 compared to its 200 day / 40 week / 10 month moving average.  (I know those moving averages are not the same, just similar.)  If the S&P is above its moving average, you stay invested.  If it is below its moving average, you go to cash or some other safe haven.

The unemployment rate (seasonally adjusted) has just moved above its 12 month trailing moving average (both simple and exponential).  Thus it is flashing caution -- possible recession very soon.  The S&P 500 is below the 200 day moving average, thus advising going to cash.  But because the S&P 500 has risen above its 50 day moving average, I suspect that the S&P will soon cross above the 200 day moving average.  Thus I am staying fully invested, but am watching the S&P carefully to see if this intermediate trend continues or reverses.

DISCLAIMER

I am not a financial advisor or consultant.  I have no degree in finance, economics, or any other financially related field.  I am simply a private individual who is doing what he can to ensure that his financial nestegg lasts as long as possible.

You are responsible for your own investment decisions.  I am not making any recommendations or offering any advice.  I am simply posting this as educational purposes only.

Senile Texas Aggie


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## greybeard (Feb 6, 2019)

Gold cross versus death cross.
I've always watched for the 50 DMA of all my major stocks to drop below the 200 DMA before becoming concerned.


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## Senile_Texas_Aggie (Feb 8, 2019)

I see you understand at some technical analysis indicators.  Did my post make sense?


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## greybeard (Feb 8, 2019)

Yes it makes sense, tho I don't put too much value in the unemployment numbers. I've tended to buy & hold dividend producing equities (predominantly VLO & XOM) thru almost everything tho. 2008 being a rare exception. There's a now faded sign at the entrance way to my property that says "The Place That Exxon Built"


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## Mike CHS (Feb 9, 2019)

I also only hold dividend paying funds and I've been that way for a long time.  There have been a couple of times where the experts were talking about going to cash that I stayed pat.  This may change tomorrow but I haven't had a year that paid under 6% including 2008 as far back as I have records for.  I have converted out of some of the riskier funds as I get older but that is expected.


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## greybeard (Feb 18, 2019)

I don't know what, besides emotion, is pushing the S&P 500 up. Earnings don't justify it and it is approaching the 2800 ceiling.  With $10 trillion tied up in S&P a true dip or serious correction  would involve a lot of liquidity.


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## Mike CHS (Feb 18, 2019)

I quit reinvesting dividends a year ago which is what I have always done when the market gets silly and it works for me.  I have more cash than I prefer but it isn't at risk.


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## greybeard (Feb 19, 2019)

Understandable. DRIP is a wealth builder but at some point, one may as well start using some of what has built up...otherwise, what's the point of building it..


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