Three Ideas on Threat Administration for October 2024

Although the S&P 500 index seems to be relentlessly pursuing new all-time highs, the normal seasonal weak spot in October leads me to be very centered on danger administration proper about now.

After my newest dialog with fellow StockCharts contributor Joe Rabil, and listening to his ideas on danger administration, I wished to share some reflections on what danger administration may imply for traders as we get into the meat of the 4th quarter.

Watch the S&P 500’s “Line within the Sand”

My common method to technical evaluation is decide the present pattern, after which determine what degree or sign would persuade me that the pattern had reversed.  I name this the “line within the sand” approach, since you actually draw a line on the chart, after which do not give the chart a second thought till and until that line is violated.

For the S&P 500, which means I am laser centered on the 5650 degree.  The July peak was proper round this degree, together with the next peaks in mid and late August.  The September breakout above 5650 was a key bullish transfer for the benchmark, and I’d count on a break again beneath this worth level may sign the top of the present bull run.

So till and until we see the S&P 500 break beneath 5650, then the present bullish pattern seems to be alive and properly!

Breadth Indicators Might Present an Early Warning

Now even when the S&P remains to be holding key help, loads of particular person names may break down earlier than the benchmarks.  The truth is, this occurs very often at main market tops like 2007!  Market breadth indicators are maybe one of the best ways to investigate and observe this potential divergence, the place particular person shares begin to break down.

Right here we are able to see the S&P 500 for the final 12 months together with the brand new 52-week highs minus new 52-week lows, the brand new highs and lows for the complete NYSE, and the brand new highs and lows for the S&P 500 members.

Notice how all three of those information collection topped out in mid-September, and have been steadily declining since then?  A wholesome bull market section normally sees an enlargement in new 52-week highs, because the main names are powering to the upside.  However in the previous couple of weeks, we’re seeing a vital breadth divergence that tells me to be skeptical of the present uptrend section.

Preserve Your Place Measurement Manageable

In my newest podcast episode with fellow StockCharts contributor Joe Rabil, he shared some phrases of knowledge on how to consider danger administration.  I notably appreciated his ideas on place sizing, sharing that he normally dangers about 1% of his portfolio on every new concept.

Choices knowledgeable Worth Headley as soon as quipped, “Should you’re having hassle sleeping at evening, your place measurement is just too massive!”  By being considerate and intentional about how a lot capital we danger on every new concept, we are able to decrease the ache in case among the bearish indicators we’re observing really play out within the days and weeks forward!

Senseless traders ignore danger administration, focusing as a substitute on how a lot they stand to achieve in the event that they’re confirmed proper.  Aware traders acknowledge that they’ll typically be mistaken, and by managing danger, they will survive to take a position one other day.

RR#6,

Dave

PS- Able to improve your funding course of?  Try my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Analysis LLC

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation.  The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.  

The writer doesn’t have a place in talked about securities on the time of publication.    Any opinions expressed herein are solely these of the writer and don’t in any method signify the views or opinions of some other particular person or entity.