Question: “Jim, why are you always so interested in what the S+P 500 is doing?”
Answer: Because as the broader market goes, so goes individual stocks, and so you need to align your strategy with that. In a bull market we need to be only BUYING stocks. In a bear market we need to only be SHORTING stocks.
Barring the odd countertrend play, you’ll lose money if you’re out of synch with the overall market.
So let’s see what’s happening. And I have something else important to show you too…
So here’s the long term chart of S+P 500 index now, the curvy blue line is the moving average (average price of previous 150 days):
The recent bounce can be seen here as part of a healthy correction in a continuing uptrend. The S+P is above the moving average and the moving average is pointing up, both very healthy vital signs. What’s more, the S+P is just 15 points from an all-time high. I also like the way that the public is somewhat skeptical of this market- from the psychological perspective, this encourages the bull somewhat because he doesn’t like to take people with him.
But while the S+P looks healthy, I think the NASDAQ looks even healthier:
The recent drop didn’t take the NASDAQ down as hard, and the moving average is looking a lot more Viagra-charged (and by all means get out your protractor). This is the domain of biotech and technology stocks, two areas we’ve been telling you are hot for months now.
2014 will be a bumpier ride than 2013, but if you’re in the right sectors like those, you’ll have a certain immunity because earnings are earnings, and companies that, for example, manufacture a breakthrough drug are going to make out no matter what.
As and when things change you’ll be the first to know, but the bull market is still on, especially for the NASDAQ.
I know it’s somewhat counterintuitive to look at a chart that’s already gone way up and buy into it, but that’s often precisely the opposite way you should be thinking because you’re bucking the trend, and trends are powerful in markets. But if you do want to have the satisfaction of getting in a lot earlier in a younger bull, perhaps this will be more to your taste…
Following on from my commentary about gold’s comeback, let’s not forget gold’s crazy twin, silver. Where gold goes, silver follows, and potentially a lot higher (and silver coins are a lot cheaper per ounce). Here’s the recent chart of SLV where you can see how the fall of the last two years has finally arrested:
My arrow there shows how SLV has broken up above the moving average. As well as that, the moving average is just starting to turn up again- the breakouts before this weren’t relevant as the moving average (i.e. the TREND) was descending. And if you want proof of how the direction in which a moving average is pointing being relevant to the long term trend, look no further. Compare this to the chart of the S+P, and I think you’ll have your answer as to why I pay close attention to the charts.
Best,
Jim.
Note: the author has a financial interest in the assets mentioned in this article.
