I concluded a brief study of each of the 22 concentrated holdings. They’re really starting to show some weakness of a sort that smells like a Bear. So, what do we need to look for, and what should be done? The very first thing is, if you know how much your portfolio was worth, as I do, calculate how far off it has gone since peak valuation. I did that, and see that we’re down just a bit more than 10%, and that’s ‘a good piece of change’, as the saying goes. How much more am I willing to lose, or, do I think about the entire situation differently?
First, the likelihood of a rally, to my way of thinking, is very great. There’s one out there. It’s coming… perhaps very soon. Second, I know there will be a good many who are going to take advantage of that rally to lighten up… and, I just might do so, too, as I’ll explain in a bit. Third, I’ve already written that when this next rally commences, since we’re so far under the 200-day moving averages of each index, that the rally behavior, as price approaches or touches their respective 200-day moving averages will likely be that point where they either see a revival of the Bull, by breaking through, and rising above their 200-day, or, as in past Bull to Bear transitions, that 200-day cannot be broached; huge selling commences, and the Bear Market has been confirmed. The 200-day is 8.5% higher at 2054 and falling.
Looking at the SPX, or S&P 500, the important market lows of August and September, which would be something like 1870 on the 500, held by the close at 1880. There was considerable support to come in and to prop the market up, and hold it above those critical levels I wrote about before. They’re not much above the low point of the mid-October ’14 bottom, as well. This area needs to hold. If selling were to push the index below those prior levels, it would precipitate considerable new selling and a likely panic and a rout.
We’re near that tipping point. Every technical indicator of market measure is saying that selling has been overdone, and a rally could commence. Bad expiration days, like Friday, are very often un-done and reversed by the price action the following Monday. (In this case, it would be Tuesday, as the markets are closed Monday.)
There are a great many who are paying very close attention to all I’ve just written about, and are contemplating their moves.
Here’s what I can consider. I can sell everything on Tuesday… close out with my current 10% or so loss, and sit on a pile of cash. There’s one thought. Two, we’re going to rally. If we don’t, then things the world over must be far worse than anyone had been realizing, I could watch this rally, and start letting issues go into the rally, and probably get out with less than a 10% loss. Third, I could sit tight, watch the rally, see if it should get to its 200-day moving average, and then act as the market does at the very point, and either sell it all then… if, if, it gets there. Or, Four, if the economy can sustain any growth, and the estimates are in any way valid, I would think this spell would resolve, by going through the 200-day, resume a Bull Market, and possibly even extend a new rally advance… the very kind of thing seemingly no one is either talking about or even thinking of.
There is a problem, of which I recently wrote, that estimates are declining right now… but, they get cut every year at this time, and then go back up! They don’t appear to be predictive or helpful!
In short, I can no more predict the future than anybody else can, but I can read what I am seeing, and what I am seeing is the classical transition from a Bull Market to a Bear. 1.) Price has fallen through its 50-day, and 2.) its 200-day, 3.) the 50-day has rolled over and 4.) pierced the 200-day for a ‘Death Cross’. And, 5.) The 200-day has also begun to roll over and point down. Since all these things must happen for a Bear to commence, and these 5 things have now all happened, we must watch to see if it confirms.
It confirms by rallying and failing at overhead resistance, which has historically been its own 200-day moving average… or, it never even gets back up there, and just continues to cascade down, for months, until some 50% of it value has been lost.
Even now, I’m contemplating just what it is I will do in whatever circumstances should present themselves. I’ll look for more data and input to digest, and I’ll share whatever I’ve got right here. But, for now, a rally should unfold, and it needs to be carefully followed when it does.
For your own study, if you have the charting means to do so, chart the 500 for a time period of almost 2 years, putting Oct. of ’07 in the middle, and see the price action up until the Bear Market confirmation in May of ’08. A similar study would be worthwhile, if you could put the late-March 2000 market top in place, and see how that Bear confirmed in early November of that year. And, if there is any model, or picture we should be looking at as a truly positive Bullish resolution to a similar circumstance as today, study the period having early October of 2011 as the center. You can see how it gave every indication of fully transitioning from Bull to Bear, but ended up resuming the Bull! We are there now, and we are either going to get one, or the other! Let’s be thinking about what we are going to do.
Here’s to your successful investing!
Harold F Crowell