On the bright side right now, dividends reinvested in AOD will be making 14.6%, dividends reinvested in AGD will be making 12.83%, and CPLP 19.02%. CPLP dividend is payable in few weeks, AOD and AGD pay monthly, so the dividends average out the losses as quickly as is possible in this situation.
The other reason I liquidated half my portfolio is that I need money to trade short in the bear market, or just have some cash sitting around to pick up the unbelievable bargains that are going to appearing in the next few months. The next few months will see some stocks so devastated by the lack of confidence that we are seeing in governments, business and our financial system, that 100%, 200% and more gains will be possible. But you'll need cash available to make those gains.
Here is why I think the bear market is just getting started. Have a look at the monthly chart for SPY (S&P ETF).
1. Bearish Engulfing Candle. This months candle is a monster bearish engulfing candle that exploded through the 17 month moving average (pink on the top graph) like is wasn't even there. See when that last happened? January 2008. It took 16 months for the market to recover when that last happened.
2. MACD is just crossing downwards on the monthly chart (blue crossing yellow). That means this downtrend is just picking up momentum. There is no good economic news out there. Europe is in disarray, the US public has utterly lost confidence in both the contribution of Wall Street to middle-class society, and Washington's ability to make any sort of coherent economic decision whatsoever. Corporations are sitting on piles of cash, but CEOs are paralyzed by fear of their boards, their big investors and of losing their inflated compensation packages.
3. Bollinger band Look at how far away this months candle is from the lower bollinger band. This months down trend has now built up so much momentum to the downside, that it continuing down to the lower bollinger band is a high possibility, taking the stock market right back to 2003 levels. Technically, if that does happen, it could even accelerate downwards, which is what happened in 2008
4. RSI is still at 15, meaning that a bounce is possible, but by no means certain, especially if small investors start to panic and yank their money out of the market to stem further losses. RSI is a great indicator that a bounce may be coming, but really only if it gets below 10. We are still some way off that, and RSI can stay low for some time.
5. Volume. Look at the volume in Jan 2008. It's about what we have seen so far this month. So, the panic is just setting in. Regular investors are only just starting to get how bad this is. If more investors panic, then volume could increase, adding fuel to the fire, and getting panic based selling up to similar levels that we saw in Financial Crisis 1.0.
In conclusion: We may see a huge bounce in the next month. Or the entire global market could crater from here on out for the rest of the year as people brace themselves for Financial Crisis 2.0. Either way, you want to half at least half you whole portfolio is cash right now and do nothing with it until things settle. If you haven't taken at least half your 401K out of ALL stock market funds by now, I recommend you consider that seriously. (Disclaimer: I am not a financial advisor, just a blogger).
Anything your broker or financial advisor says to you about global diversification right now should treated with contempt - the US debt downgrade is as global an issue as any we ever see in our lifetime. If you don't get out of funds and have a big chunk of your 401K in cash or bonds, long term stock market funds in your 401K funds will probably be well on track to being back to 2004-2005 levels, erasing the last five years of gains if there is not an immediate bounce. Sit on the cash, then watch for the recovery in about six months and seek to use your 401K as a trading account to be invested in only when the market is in clear uptrend.
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