Market was ugly but be prepared to jump back in
Time to quit reading all the doom and gloom and quantify just how bad it really was. We will use our 3 standard yard sticks from Barchart to see where we really stand and try to come up with a strategy for next week.
Value Line Index -- Contains 1700 stocks so it is much broader than the S&P 500 or very narrow Dow 30 -- We haven't been this far down in a long time
The Index was down 8.12% for the week
The Index closed Friday below it's 20, 50 and 100 day moving averages
Barchart's technical indicators have 9 out of 13 sell signals for an over all rating of 48% sell
Barchart Market Momentum -- Contains approximately 6000 stocks -- Percentage of stocks trading above their daily moving averages for various time frames -- Above 50% is good but we were no where near that this week
20 DMA -- 9.99% this week, 48.92% last week, 71.47% last month
50 DMA -- 23.74% this week, 72.02% last week, 84.85% last month
100 DMA -- 43.79% this week, 80.10% last week, 83.92% last month
Ratio of new highs to new lows for various time frames -- 1.0+ bullish, 1.0 neutral, below .99 bearish -- We are bearish for all 3 time frames
1 month ratio of new high/new lows = 141/1788 = .08
3 month ratio of new highs/new lows = 103/632 = .16
6 month ratio of new highs/new lows = 71/362 = .20
Investment strategy for the coming week -- The Conference Board last week reported its best news in several years. First time all 3 economic indicators were positive: leading, coincident and lagging. The economy is the US has turned but there seems to be a possibility that the world wide economy is being dragged down by Greece, Portugal and Spain. I will trim my worst stocks and not reinvest until I see some support in the market. When the market comes back it will snap back like its being pulled by a rubber band. Each day have a buy list so you will be prepared to jump back in and not be left behind. Remember that the stocks that do well during this market pullback may not be the ones that benefit in the next rally so make a new buy list every day. If you are a cautious investor only buy back into the market one position at a time.
Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com.