The title of this blog may sound like I am promoting famed rock star group “KISS”. Either that, or I’m implying a romantic involvement with the market. Neither is the case. I’m referring to the old saying “Keep It Simple, Stupid”. Today, we will take a simple look at the market, which is often the best way.
First, I’d like to suggest you visit a very short video I published recently regarding the worst case scenario for the markets. I looked at the long term US picture since the great depression, and drew some trendlines that could be very telling. That’s available here: One Chart to Rule them ALL – ValueTrend
After reviewing that video, I’d like you to take a look at a daily chart, below. On it, I’ve outlined those simple trend following tools that you need to be aware of. That is,
- peak & trough identification,
- trend line identification,
- identification of price vs. the 200 day SMA
On the above daily price chart, you will see that the market followed a big picture downtrend (big red arrow) in 2022. You will see that there was a neartermed uptrend that began in late 2021 – also a red arrow. The downtrend line was briefly penetrated when the market broke its last peak of 4100 in early January. Then, the market retreated back into its down trend. Meanwhile, the short uptrend looks to be breaking.
The 200 day SMA (simple moving average) was cracked late last week at around 3940. Near termed support, which is seen via the last significant trough, lies at 3800. That’s about where we are now.
If 3800 breaks, next stop is the October low of 3500-ish. The SPX may pause here at 3800, as it did for about 3 weeks in late 2021. If it bounces up, that’s a good sign. However…I’d still wait for 4100 to break before I invested any of the 26% cash we hold right now. However, if 3800 breaks for 3 days+, Craig and I have agreed we will raise a bit more cash, probably backing off to a level 30% from the 26% we hold now.
If 3500 breaks, my target would be 3200 where support came in after the 2020 COVID crash (not seen on this chart). One step at a time.
In this environment, you need to stick to a system. If you don’t have a system, and would like to find out how we manage our clients portfolios, contact us here.
Or, you can take the Online TA course here – the online course is very reasonably priced to help you do things RIGHT!
Either way – Its important that you have a discipline, or you hire a firm like ValueTrend to exercise it for you. The easy days to invest are over, and the current environment is not one for beginners.