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James Brumley

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Stop the Market, I Want to Get Off

Is that how you feel right now? You want to get off this crazy ride? If you’re like most investors, probably so. Here’s some perspective that will help you navigate through what is hopefully the last part of a volatile period (for better or worse).

First and foremost, know that a meltdown isn’t a forgone conclusions. Many pundits are sounding the death drum right now, but they’re always sounding the death drum - thy just get more attention when stocks stumble. The reality is, the market (let’s use the S&P 500 as a proxy) is still holding above the point of no return.

The nearby chart of the S&P 500 illustrates this idea in a couple of different ways, but primarily suggests this by the way the support line at 1063 has yet to yield. Perhaps the market just needed to fall back to that line one more time for a last-minute ‘cleanup’ before proceeding higher; it’s the line in the sand now regardless of the reason.

And, though you can’t see it on the chart, Tuesday’s accumulation (buying volume) was much stronger than Monday’s distribution (selling volume). Perhaps many buyers were just waiting for the window of opportunity to present itself one last time…. which it did with Tuesday’s low.

The bears have their good arguments too though - namely, the fact that the 200-day moving average line (green) is still looming above, and has already acted as a resistance line a couple of times in the last three weeks. Until it’s cleared (currently it’s at 1107.2, and rising), any rally effort is going to be legitimately questioned.

In the meantime, stocks are simply caught in no-man’s land, forcing us to wait for clarity. We’re not necessarily at the beginning of an implosion though. From the high close on Aril 23rd to the low close on June 7th, we’re only looking at about a 14% correction. That’s (and we’ve all been spoiled on this front) a pretty typical correction.

And if you want a bullish case - or at least an interesting read - we’ll encourage you to review the commentary straight from Richard Arms about how oversold the market is at this point. It’s an esoteric tool, but one we use with success.

That being said, we’re still leaning bullishly.

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James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.