We're now in the 'red zone'

     The XAO Indicator turned well and truly red today. We are now in what I call the 'red zone'. This does not necessarily mean the market will fall further - on 25/8/10 the first red bar was actually the lowest and the market rallied from there - but that is the exception not the rule.
     What the 'red zone' does mean though is that the market is now at risk of falling further. There are only 2 ways to avoid a large fall, one is to sell out and the other is to hold lots of put options. If you don't know how options work, well then, they're not an option for you. If you own stocks on margin, now is the time to think about how to handle a margin call.
     This is how the XAO Indicator can help - by sounding the warning bell so that you can prepare. I myself am now only 40% invested and 60% cash plus I am holding puts for further protection. I am very cautious by nature and very reluctant to hand back to the market well earned gains - even if I end up missing the start of the next rally.
     I have thoroughy researched the way stocks behave when the XAO Indicator is red (and blue for that matter) so I have a fair idea about it. You too can do the research - I have given the dates of change in the Indicator going back over 10 years. You will find that information to the left of this post.
     Below I have posted 2 charts, both of the All Ords. One is for the past 12 months. The other is for for the past 3 years to give a longer term perspective.