The
S&P 500 was down 1.7% to 1237 Wednesday.
Depending
on which article you read (or listened to) the reason for today’s poor showing was
the Euro zone financial crisis or a Fitch news release (Fitch is a rating
agency) that said, unless Europe got its act together soon Fitch was going to
downgrade the US Banks. Are they (Fitch)
kidding us?! Did someone really think
that news was new? Well, apparently some
did because Morgan Stanley was down 8% and most of that came late in the day
after the Fitch news. This sent the
charts of the major indices careening down to the bottom trend line.
I
don’t follow charts much. The chartists
have names for a myriad of chart patterns and each pattern means
something. It just doesn’t mean much to me; but we can
look at the basic charts and see where we are in “the channel”. Stocks tend to move in a saw-tooth pattern
while remaining in a channel. As an example, here’s a chart of the last
3-months from Yahoo financial:
The
bottom of the channel is well defined with 4-points over several weeks. From my perspective, if I have only one point
on the top; and that point happens to be statistically significant (by NTSM
methods); and the trend is short, I tend to put the top of the channel at about
5% above the bottom channel. The importance of the channel is that as long
as we remain above the bottom channel line, the uptrend remains in effect.
The
chartists draw the red, dashed-line as the upper channel line and this creates
a “symmetrical-triangle-pattern”. It’s symmetrical
because the pattern is neither going up nor going down. This
pattern indicates confusion in the market (they say) and may break either way.
My
guess is that the bottom-channel will hold and the S&P 500 will either move
up tomorrow, or be down enough to shake out the non-believers before we move up
again in the next couple of days.
So
in this case, chartist or not, we don’t want to continue down or the bottom
trend line will be breached and the trend is then considered down. To call a trend-change the drop needs to e
convincing, say 1 to 3% below where we are now.
All we can do is wait.
The
NTSM analysis remains HOLD today.
I
bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct
NTSM buy signal. I remain 100% long in
the long term portfolio (100% stocks in the 401k.). (See the page “How to Use
the NTSM System” – the link is on the right side of this page).
I am 90% long in the trading portfolio – up slightly because I bought some more on the dip today. I am probably over-committed (maybe I should be committed) considering all the bad news out there.
