Looking for Reassurance

03/23/2018

There’s nothing like a 700 point drop on the DOW to shake things up a bit. Not emotionally immune to this kind of market behavior I had to look for some confirmations that Thursday’s drop was within “normal” volatility range…or if not prepare to take some portfolio management steps.

I often make fun of our industry when we predict the future, and when our predictions come true (it does happen once in awhile)  we act as if we were totally blindsided, with no rational explanations. In this case, I have to laugh at myself a bit. In my beginning of the year “prediction” blog post, I posited that we would see increased volatility this year, with positive breaks during earnings season, as long as earnings managed to meet or exceed expectations. With +/-2% days being more frequent, let’s hope first-quarter earnings reports can pull the market back up. We should know in a few weeks.

I am a believer in using technical analysis for short-term trends. Whenever I want a view of the health of the market, I pull up a chart and apply a few indicators. Today I didn’t have to do much. Below is a chart of SPY, the S&P 500 Index ETF, with trendlines that I had drawn in months ago. Simply, the SPY has hit the bottom trend line and, as of 10:25 AM on March 23rd, appears to be bouncing back up into the trend range (defined by the two parallel straight lines). It is also easy to see the market volatility before and after February’s large drop.

The point? As of now, the market is not doing anything unexpected, but it is very close to crossing down into the danger zone. If the market reverses down today or posts a couple negative days at the beginning of next week, it may be time to start putting the defensive team on the field. Hopefully, with a few up days, the market runs up to the top line, and with positive earnings, crosses through and above.

SPY 03232018

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bill@401advisor.com • 937.434.1790

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.

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