Did the market give you whiplash last week?
It's the weekend again and time to take stock of the market. It was a very confusing week. One day up then the next day down , sometimes the fair value is down before the market opens but the market closes up by the end of the day. What's an investor supposed to do? Don't let the headlines confuse you, just look at the facts. Look at the three handy yardsticks I make from the data I find on Barchart. I use three because no single yardstick is a complete barometer of the market.
Value Line Index -- Contains 1700 stocks so it's much broader than the S&P 500 or the very narrow Dow 30 -- This week the Index was down
1 - Down by 5.50% for the week
2 - Had 2 up days and 3 down days
3 - Had 2 up weeks and 3 down weeks
3 - Had 3 up months and 2 down months
4 - Closed Friday below its 20, 50 and 100 day moving averages
5 - Barchart technical sell signal of 64% -- 2 buy, 1 hold and 10 sells
Barchart Market Momentum -- Contains approximately 6000 stocks -- Percentage of stocks closing above their Daily Moving Averages for various time frames -- More than 50% bullish -- Less than 50% bearish -- Very bearish this week
1 - 20 DMA -- only 10.20% closed above Friday -- 27.67% last week -- 77.65% last month
2 - 50 DMA -- only 18.13% closed above Friday -- 40.07% last week -- 85.12% last month
3 - 100 DMA -- only 36.67% closed above Friday -- 60.96% last week -- 86.41% last month
Ratio of stocks hitting new highs to stocks hitting new lows for various time frames -- 1.0+ bullish, 1.0 neutral, less than .99 bearish -- major bearish signal
1 - 1 month ratio of stocks hitting new highs/new lows -- 156/2906 = .05
2 - 3 month ratio of stocks hitting new highs/new lows -- 111/1692 = .07
3 - 6 month ratio of stocks hitting new highs/new lows -- 84/846 = .10
Investment Strategy -- The market is trending downward and the brief reversals on last Monday and Friday can't change that. I am not panicking. I will continue to cull stocks trading below their 50 day moving averages if I feel that in the short run they are not showing signs of recovery. I will hold off buying replacements until the market as measured by the Value Line Index is again trading above its 20 day moving averages.
Trade with your brain not with your emotions!
Jim Van Meerten is an investor who writes on financial matters on Financial Tides and Barchart Portfolio Blogs. Please leave a comment below or email JimVanMeerten@gmail.com.
Disclosure: No positions mentioned