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Invest What You See

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I’ve gotten some texts and emails about the big drop in the market today.  Some hadn’t read the blog posts from the past few days where I gave a heads up that the market was ready to pullback based upon various indicators I detailed in the posts.

Tonight, I’ve taken some time to analyze the markets and check on our strategy.   If you look at the chart above, you will see the big drop in the market (the big red candle on the far right of the graph) is sitting on the blue trend line and above the red moving average envelope line.  We have two conflicting things happening here – the blue line will provide support for the index as it works to stay above it. However, the more critical of the two is the red envelope line.

In a post earlier this week, I mentioned that once the index get outside the envelope of 10% on either side of the 200 day moving average of the index, it always reverses and heads back within the envelope.  It got most of the way to the envelope today, but still resides outside of it.

What this tells me and what I expect is that we will have a bit of a rally tomorrow (Friday’s before three day weekends trend toward positive historically, anyway, just FYI).   This buying will allow people to sell stuff that they should have take profits in earlier, but it will be short-lived – maybe a day or two of rally – then the market will make another move down into the envelope.  The strong odds are that a move to the 200 day moving average will be likely, but I haven’t had time to check on all of the support levels from previous market activity.

I will get a more comprehensive analysis out to everyone after I have time to review things, but I just wanted to let you know that if you haven’t booked profits in your personal assets we don’t manage, you have time during the next day or two most likely (as long as the blue line support holds).

In the portfolios I manage, the past few days I’ve been shifting funds into assets that move contra to high tech that has dominated the market:  oils, industrials, and banks.  Overall, the relative performance to the market was positive for these changes on this downdraft day, but if high tech remains under pressure then the cumulative outperformance will become material.

Remember, I’ve written on this blog many times over the years to “invest what you see, not what you believe” and yet again, watching the charts and my indicators has paid off.  It is easy to get caught up in the hype of investotainment (CNBC and the like) but they get ratings off sound bites – they are not there to make you money – you leave that to me.

Have a good night and enjoy your long weekend!

PS – when was the last time you watched Tommy?

—Mark