When we last discussed the market outlook, I was working with the analysis of a continued uptrend in the SPY to be bought at support.
The SPY bounced off the weekly 50 period moving average and 200 day moving averages, but ran out of steam at what is now a descending trend-line of SPY tops since May 2015. That is represented by the descending red line of SPY tops on the chart below.
$207.31 on the SPY (light blue line) will likely bring in some buyers due to lateral price support. If there is no serious battle waged by the institutional bulls at that level, next lower price will likely be another battle at the 50 week and 200 day at around 205.88.
Until we break 204.14, the SPY is still trending upward. A close below that most recent support low, and we will consider the trend to have changed.
There is no doubt that the market is demonstrating fear at this moment. The commodity space has been beaten into a bear market. Many sector ETFs have already broken support and started a trend lower.
In addition to technical damage causing concern, this week on Wednesday, the Federal Reserve will provide more information surrounding expected interest rate rises. Thursday will provide revised GDP numbers that have the ability to start a trend shift lower or bring in the buyers yet again.
What am I doing?
I will risk some cash at support to the long side. If the support breaks I will sell and shift to a short and cash bias.
Very tricky week ahead.
There are good reasons some people feel better investing in an index such as the S&P 500 using an ETF such as the SPY, instead of trying to pick individual winning stocks.
LifeLock (LOCK) dropped 50% today. Do you have an edge picking individual stocks?
The 50 week moving average held on the SPY. The uptrend is still alive, so, get involved with stocks.
Last week’s daily SPY break of the 200 DMA for a brief period whipsawed us out of some position for about 1/2 a day. The reversal and close above pulled us back in. It happens, and no regrets for being disciplined and respecting the averages.
This is a lesson as to why you need to hold your positions through the minor ups and downs in order to have enough profit if shaken out on occasion. We sold when the SPY broke the 50 and the 200 day moving averages.
That dip below the 200 day and at the 50 week, promptly brought in the buyers, but it was a dangerous moment, and we lived to fight another day.
If you hold your position no matter what the price action of the overall market, you may find your portfolio dragged into the abyss of a bear market, unnecessarily.
Whipsawed today. Look at the attached charts.
The SPY broke down on the daily and then bounced with volume and conviction at the weekly 50 period moving average. The battle lines are drawn and as long as the SPY stays above the 50 week moving average, I will rebuild long exposure.
If you were nimble enough, you were able to catch the bottom today and start that rebuilding early. Once the SPY climbed above the intraday 50 period, it was off to the races.
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The SPY has broken on the daily view, so I sold stocks today and am 75% in cash.
Will the SPY hold on the weekly and bounce?
Only time will tell.