It’s the end of the world,  as we know it

By now, readers know that I sometimes draw inspiration from classic rock n’ roll for my blogs. I went to high school during the 1970’s – the era that inspired the greatest rock legends of all time (with thanks to the 1950-60’s ground breakers like Elvis, The Beatles, and the Stones).

Although not from the 1970’s – REM had a hit song in the late 1980’s that inspired todays title. It does indeed look like the end of the world, as we know it, insofar as investing is concerned

After all, the rules over the past 2 years  stated that in order to invest successfully you must:

– Own at least two of the FAANG’s (FB, AAPL, AMZN, NFLX, GOOGL)

-Never, ever, ever sell ever because the market always goes up and never, ever, ever, corrects. Ever.

-Today is always the best day to buy because the market cannot have any more than 0.75% correction in a day – as noted on last Halloween’s blog. Furthermore, a corrective day will be recovered, and move onto new highs within two days henceforth. So if you don’t buy today, you miss out.

Perhaps those rules are changing….

Here are my short termed chart impressions of the market after yesterday’s pullback:

• The S&P 500 broke its daily chart trend channel. However, it has done this to the upside before and returned. Chart above.
• The March lows were tested but not breached in the recent correction – so far.
• The 200 day SMA was cracked intra-day but the market finished pretty close to that line. Should the 200 day SMA crack decisively, that will imply a move below the last low (March). I do not take defensive action until that breach of both conditions lasts more than 3 days—with the discretion to act  more aggressively within 3 weeks of the breach depending on the rapidity of the move that follows.
• Two of the market leaders (FAANG’s) have been broken. FB has broken its trendline and GOOGL has put in a double top- as discussed on this blog.
• Three of the market leaders (FAANG’s) are largely on trend, although experiencing a healthy dose of pullback to rid themselves of their overbought conditions.
• We recently got a bullish short termed timing signal from my Near-termed Trading System (green vertical lines are “buy” signals, red lines are “sell” signals). Chart below.

I’ll post the longer looking Bear-o-meter soon, although I did a recent reading of that indicator here. It was a bullish (6/8).

I covered a bit of my outlook on my BNN appearance yesterday. Here is the clip.

Conclusion

From the observations above, the most important notations are that the S&P 500 has held its 200 day SMA. Again –  it marginally broke that average at 2582, vs.  the MA at 2590, but it was so close I’ll call it break even. And it successfully tested its last low (2580 in March). Should both of those levels break, I will count a minimum of 3 days below their respective levels before electing to take defensive action. Upon a three week break, I will become even more defensive. From a disciplined perspective, the trend is still intact. Seasonals are still bullish. The last reading of the Bear-o-meter was mildly bullish (6 out of 8). I’m still long the market – although taking a keener interest in defensive positions such as staples – per my top picks on BNN Monday. I’m also keeping an eye open for a potential 2011 like correction, as discussed here.