Decision Time for Investors and the Market

The major indexes forfeit two percent of their gains last week and essentially erase the bounce off the March 11th low and breaking below the 50 day moving average. The short term trendline off the October low is being tested and this puts investors on guard as we start a new week of trading. The month of March comes to an end and the economic data will be the news of the week with earnings to kick of shortly. There are plenty of question marks hanging over the markets and the data points are likely to create short term volatility which eventually could be the determination of the near term trend. That said, it is more important than ever to know what strategy you are going to use moving forward along with a timeline for holding and managing positions.

The chart below of the S&P 500 index shows the lack of direction in the index since the November and December highs. The index has managed to hit several new highs, but the lack of follow through on each move has been the challenge. Measuring off the October low we could say it has achieved a rising wedge pattern, but the reality since the November highs is almost sideways with some news driven rallies. Thus, short term is a flip of the coin for investors or either side. The last two months have been more of a tug-o-war between the buyers and the sellers. 2040 now become the key support level to watch for the index short term and the 2118 mark is resistance on the upside. This will require some patience to let it all unfold.

sp500 gap


In our webinar on trend analysis we discussed the importance of following the trend and determining how to manage our money within a trend technically and fundamentally. Based on what we see above it is decision time for the index and with the release of fundamental data this week we will get a better picture of what to expect from investors short term. Earning staring in next two weeks will lend even more clarity looking at the intermediate term picture. Using trend analysis in addition to the fundamental analysis helps you gain clarity relative to what the charts are doing and projecting going forward. That also gives you confidence of how to invest and manage your risk relative to information you compile with a specific time horizon in mind.

Looking at the chart above we determine the importance of 2040 level micro term (0-13 weeks). A break of that level opens the way to 1980 as the next support level to watch. A closer look at the bar posted to the chart on Friday we see an inside trading day relative to the Thursday bar. This indicates a possible change in direction… up or down. Up would be a follow through to Thursday’s intraday reversal and a potential move back towards the 2118 resistance. Down would be follow through to the reversal off the 2118 level last week. It would break the uptrend line off the October low and establish a double top pattern off the February high. If the economic data is poor it would confirm the break lower fundamentally short term. Putting it all together and defining a strategy for investing heading into the new trading week is a key part of managing your money week to week and data point to data point.

If you missed last week’s webinar, ‘the market isn’t meant to be put in a black box’, you can view it here. If you want to attend the follow up webinar on how to put pattern trading/technical signals into your investment strategy click here. Using simple strategies for keeping you on track with your portfolio are key to long term success and stress management when managing your money. See you Monday night.