Home About Archives RSS Feed

@theMarket: The Trend Remains Your Friend

By Bill Schmick
iBerkshires Columnist

The markets have weathered the recent storm of selling and have sprung back fairly quickly this week. There may still be a squall or two ahead, but it appears the worst is over for now.

We still have not tested my target of 1,709, the 200-day moving average (DMA) on the S&P 500 Index, but we were close. We fell to 1,739 intraday on that average, which was just 1.7 percent shy of my target. That's close but no cigar for me. Still, from the peak of the market to this week's low, the S&P 500 declined 6 percent. That was a reasonable decline.

It was enough to reduce the overbought conditions of the market and to reduce the overwhelmingly bullish sentiment of investors that had kept me cautious for most of the first month of the year. The question that remains is whether the markets have a larger drop in store for us sometime in the future.

In the meantime, I suspect we are on our way back to the highs, around 1,850 on the S&P 500. Once the averages regain those levels, we may climb even higher. Exactly how we get there will be important.

If the rally is fast and furious, while investor sentiment becomes increasingly complacent, then once again that exuberance will set us up for another implosion. The next time around, however, the pullback could be in the double digit range. So what will I be looking for in gauging the future risk of a sharp downturn?

I want to see a broad-based rally; one with increasing volume with all sectors performing well. On the other hand, a rising market, where advancers have a hard time outnumbering declines, and where valuations remain stretched with fewer and fewer stocks participating will turn me cautious once again. Under those conditions, I would expect renewed weakness and a deteriorating technical picture of the markets.

However, those are future concerns, which could or could not develop in the months ahead. For right now, the pullback is essentially over. What lessons readers should take away from this experience are two-fold. Number one, the markets will have these kind of sell-offs 3 or 4 times a year. Although it is easier to spot a potential short-term decline, it is practically impossible to call a short-term bottom. That's why I advised you to do nothing.

Number two, attempting to avoid these sell offs by trading out and then buying back into the market is extremely difficult, if not impossible, on a consistent basis. Let's say you did not follow my advice, but instead sold out a few weeks ago when I first advised readers that a pull back was in the offing. So far, so good. Congratulations, you saved some money but when do you get back in?

My target for a potential bottom was the 200 DMA on the S&P 500 Index, which we never reached. Remember this forecasting stuff is an art, not a science. Instead, it was the Dow Jones Industrial Average that hit and broke its 200 DMA on Monday into Tuesday and then bounced. The rest of the indexes took heart and followed the Dow higher.

No harm done for those who took my advice and stayed fully invested. Your paper losses are rapidly dwindling as the markets gain traction. But for those short-term traders who are still waiting for the S&P to breach its 200 DMA, well, that's my point.

Do you hope the markets' bounce will fail and go lower from here, what if it doesn't?

Will you be forced to chase stocks higher? As I've said, getting back in is a lot more difficult than you may think. While you ponder your next move, the rest of us can be grateful that this correction is over.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

News Headlines
Pittsfield OKs Cumberland Farms Expansion on First Street
'The Hunger Games: Mockingjay - Part 2': Clueless in Panem
Pittsfield Mayor-Elect Tyer Crafting Transition Plans
Moulton Clan Grows Thanksgiving Football Tradition
Reid Middle School Class Throws Thanksgiving Feast
North Adams Officially Begins The Holidays
North Adams Firefighters Deliver Turkeys to
Tree Lightings & Holiday Events 2015
Mount Greylock PTO, NBCC Hosting Forum on Youth Substance Abuse
2015 Bazaars & Craft Fairs

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.




@theMarket (187)
Independent Investor (255)
November 2015 (6)
October 2015 (9)
September 2015 (7)
August 2015 (7)
July 2015 (6)
June 2015 (8)
May 2015 (6)
April 2015 (8)
March 2015 (6)
February 2015 (7)
January 2015 (9)
December 2014 (7)
Taxes Europe Debt Ceiling Rally Energy Commodities Economy Currency Interest Rates Recession Deficit Greece Oil Election Markets Crisis Japan Banks Stocks Stimulus Pullback Europe Euro Fiscal Cliff Housing Debt Retirement Federal Reserve Fed Bailout Metals Selloff Jobs Stock Market Congress
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
Recent Entries:
@theMarket: Markets Climb Wall of Worry
The Independent Investor: Financial Media May Be Your Worst Enemy
The Independent Investor: How 'Black' Will This Black Friday Be?
@the Market: Buy the Dip
The Independent Investor: 'Bag Lady' Syndrome and You
The Independent Investor: Social Security & the Budget, Part II
@theMarket: How High Will We go?
The Independent Investor: Budget Deal Craters Social Security Strategies
@theMarket: Regaining the High Ground
The Independent Investor: Water Scarcity Not Only California's Problem