This article was originally posted on 6/11/2021 via the Public app.
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“The S&P climbed nearly 20 points, or 0.5%, Thursday, surpassing 4,239 points and besting a closing high of 4,232 from May 7.”CNBC
Did you feel that?
Yesterday was special, it’s been a little over a month since the S&P made a new high. So what does that mean? It means nothing by itself, but when you factor in the market’s past behavior and compare it to its current behavior, this information can be used to guide trading strategy or make predictions. Some people will look at this data and say the market is peaking and preparing to enter a bear market, I personally don’t believe that. Other people may see the same data and say it’s time to start investing defensively by going to cash, Treasury bonds, T bills, gold, money market funds, using puts, inverse ETF’s, blah-blah-blah.
Obviously, I don’t believe any of that. I personally believe that institutional investors are just uncertain and this uncertainty has caused markets to move sideways. Since March, I’ve been watching the “price action” of the major averages for signs of uncertainty or reversal, so far I haven’t been able to pick up anything not worthy. When looking for a reversal, it’s always beneficial to look at the current trend and figure out if it’s a rising trend or a falling trend. To do this, all you have to do is look at a major index and observe the direction that stocks are moving over the daily, monthly, and yearly charts.
This could be achieved by looking at the corresponding moving averages too (link below) but I’m a visual learner. Next, you look at the 3-month price movement and look for signs of a developing upward trend or downward trends. According to Investopedia, an uptrend is a series of higher highs and higher lows, and A downtrend is a series of lower highs and lower lows.
So what’s going on?
Despite the horrible daily performance of my portfolio, it has actually retained a lot of its value, it just feels like the market is doing badly but we’re actually doing alright. Remember the “Big May 11th crash” when the Dow Jones Industrial Average fell 681.50 points and posted its worst day since January and the S&P 500 fell to 4,063.04 which was its biggest drop since February? That was only a -2% downward move for the Dow and a 2.1% dip for the S&P, the fact that we are now sitting on a new record high really drives home the point that we haven’t seen a single 5% dip this year.
At one point, some of the indexes were down 5% on the week but a bear market is a decline of “20% or more over a sustained period of time—typically two months or more”. So despite the pain, we’re not in trouble, we’re still in a bull market Right now we are experiencing an improving economy, a strong recovery, BUT all markets including the stock market are experiencing uncertainty. In this time of uncertainty, a shift in interest rates, news about inflation, tax policy, or geopolitical policy unrest could trigger fears and a corresponding short term decline so stay on your toes
Sources
- Defensive Investment https://www.investopedia.com/terms/d/defensiveinvestmentstrategy.asp
- moving averages https://www.investopedia.com/terms/m/movingaverage.asp#what-is-a-moving-average-ma
- Bear market https://www.investopedia.com/terms/b/bearmarket.asp
- reversal https://www.investopedia.com/terms/r/reversal.as