Skip to main content

Time to sell your stocks?

The stock market took a body punch today. Should you sell everything?

Let's take a look at two representative indexes.

First up is the S&P 500. Check the red ellipse drawn on the chart.


This ellipse highlights the area where there is a convergence of the 50-day moving average, the lower Bollinger Band and a short term support level established in June. In other words, this range from 945 to 955 should provide serious support for this important index.

This next chart shows the NASDAQ 100. Here we have drawn a red circle and a blue ellipse.


The red circle highlights the convergence of the 50-day moving average and the short term support level established in June, much as we saw above in the chart of the S&P 500. In the case of the NASDAQ, however, the lower Bollinger Band is higher than the previously mentioned indicators and the index has already slid pretty close to it. So the NASDAQ 100 has two support areas: the range from 1510 to 1520 and that range around the lower Bollinger Band at 1563.

Conclusion --

The following points suggest that selling now is not the right move:
  • Volume on today's move was not particularly heavy. In fact it was less than on many of the days when the markets rallied and bears said the volume wasn't sufficient to confirm a real rally.
  • As described above, there are significant areas of support that can be expected to limit the declines in the indexes we examined. This implies that losses will not be significant. Indeed, this could very well be a healthy pullback.
  • Up-trends starting at the March lows have not been violated.
  • With the enthusiasm of earnings season clearly waning, investors are looking to economic reports. Unfortunately, all we are getting are mixed signals: retail sales are declining while manufacturing is improving, job losses are declining but remaining stubbornly high, real estate hitting bottom but far from full recovery and so on. Say what you will, what we are seeing is not by any stretch the indicators of Armageddon. With respect to fundamentals, then, I would tend to give the benefit of the doubt to the bulls.
So hang on to your stocks. Indeed, if the major averages respect the support levels described above, it would be a signal to buy.
Labels:

Comments

Post a Comment

Popular posts from this blog

Time to be conservative with your 401K

Most of the posts I and other financial bloggers write are typically focused on individual stocks or ETFs and managing active portfolios. For those folks who are more conservative investors, those whose main investment vehicle is a 401K, for example, the techniques for portfolio management might be a little different. The news of stock markets falling and pundits predicting recession is disconcerting to professional investors as well as to those of us who are watching our balances in an IRA or 401K sag. What approach should the average 401K investor take? Let's assume that the investor is contributing on a regular basis to one of these retirement accounts. There are two questions that the investor needs to ask: 1. Should I stop putting the regular contribution into stocks? My feeling is that investors making regular contributions are being handed a present by the markets. Every week the market goes down, these investors are lowering their average cost. When markets reco...
7 comments
Read more

The Trouble with Trend Reversal Indicators

Many of us use various trend reversal indicators to time our trades. Our desire is to determine when prices have changed direction so that we can ride the new trend. Why doesn't it always work out? The first reason, of course, is that unforeseen events often drive prices in unexpected directions. That is something we can't change and it often makes all of us technical traders crazy. On the other hand, sometimes an unforeseen event is a prelude to a new trend. A stock spikes up on a what seems to be a one-time piece of good fortune and soon falls back. Does it start making its way back up or does it resume a previous down trend? The conflict within trend reversal indicators is that, though they can definitely tell when prices change direction, they suffer from two problems. One, they often can't determine how significant that move in prices actually will be. Two, they are often lagging indicators. As such, they can be late in providing a signal, sometimes leading the investo...
1 comment
Read more

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation ...
4 comments
Read more