“Professor Trelawney delicately rearranged her shawl and
continued, 'So you may have chosen to study Divination, the most difficult of
all magical arts. I must warn you at the outset that if you do not have the
Sight, there is very little I will be able to teach you. Books can take you
only so far in this field…'”
I
have occasionally noted that I am not really a chart person when it comes to
divining the future of the stock market; it’s a lot like reading tea leaves to
me, even though many seem to be successful.
I’ve discussed the head and shoulders pattern
and the “w” pattern on 13 February and yesterday, but that’s about it for me.
However, it is very important to follow general chart trends.
For
example, the chart below shows the channel as of yesterday’s close. The S&P 500 is moving up within a very
narrow band (channel) defined by the top black trend-line and the lower
dashed red trend-line. This is a
typically narrow band that occurs after a significant bottom. The channel is narrow because investors are
buying after the bottom so the markets don’t drop much. At some point, this band must expand to about
a 5% (normal) spread as some profit taking occurs.
When
that happens, the channel will widen out and begin moving up within the 2-black
lines. That is why I have been
suggesting that the S&P 500 could fall about 5% down to its lower trend
line.
Today’s
close below about 1360 means that a descent to the lower trend line probably
has begun. For the next several
days/weeks we will have to endure the talking heads on TV wringing their hands
that the rally may be over. I see no point
in being concerned unless the S&P 500 drops below its lower trend line – that’s
now roughly 1310, but that lower trend line should change (hopefully upward) as
time goes by.
(Yesterday's) 3-month
Chart from Yahoo Finance at…
I
can get very conflicted if the NTSM system gives a sell signal before we get
below the lower trend line (and that is possible), but I’ll deal with that if
it happens. The NTSM system is looking
quite stretched now, however, none of the indicators are now calling a sell.
The
S&P 500 closed at 1358, down 1/3% today.
VIX was flat.
Today
the NTSM analysis remains HOLD.
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).
Just
a reminder: 100% invested in stocks is way too much for most rational
folks. Don’t do it unless you have a
high tolerance for risk.
