A few housekeeping items before getting to today’s charts:
- I was on BNN’s MarketCall last night
- I’ll be speaking at the Oakville Central Library tomorrow (Thursday January 30th) at 7:00pm on the effective use of technical analysis and to promote my book Sideways. I hope to see you there if you live in the area. Admission is free.
- I’ve written a few new Investors Digest and Moneyletter articles – visit www.valuetrend.ca and click on the “Read Keith’s Articles” at the bottom of the homepage to see them
- My Globe & Mail article following up BNN’s show is available here: here.
Now let’s get the markets. The past year + has been quite a bull run for the US equity markets. “Buy on the dips” has been an effective strategy. On last night’s BNN show I highlighted a couple of support levels on the chart for the current dip that may be worth buying at. My main message: Watch for a bounce from next support on the S&P 500 at around 1725, if current support of 1775 doesn’t hold.
Below is a chart of the number of stocks that comprise the S&P500 that are above their 50 day MA’s. You might notice the blue horizontal lines I’ve drawn. This indicates where about half (240, to be exact) or less of the stocks comprising that index have dropped below that MA. On each such occasion, the market rallied shortly after this level was breached—see the S&P 500 chart below.
Before you get too excited, I’ll point out that in 2010, 2011, and 2012, this indicator dropped much further than it has over the past year. The corrections in those years were deeper—particularly 2011’s. The 50 day MA indicator dropped to a level of 20 during 2011’s correction! The weekly chart below has three extreme levels circled, each signalling a buy from a deeper pullback.
The takeaway here may be that the market could rally very soon, were it to follow the pattern it has over the past year or so. However, the market could sell off more if it were to follow a more typical correction seen in the 2010- 2012 period. My estimation is that we’ll not experience a severe correction until Q2 or Q3. Seasonal and trend analysis are favorable enough to suggest this correction will be short lived. But only time will tell.