The next market move

samsonLast Friday’s action in the markets was awful, no doubt. It was the worst week since June last year.

So what happens next? Did this mini-crash reveal any hidden opportunities?

Let’s take a look…

Only last week I showed you that a break below the 1800 area wouldn’t be so good, and the S+P did that in style on Friday:
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Expect further downside to the 1770 area, perhaps after a small upwards bounce to the 1800 area. If the S+P can’t hold above 1770, the drop will likely continue to 1730.  If it does hold above 1770, that’s a good sign.

So what does this mean in terms of what’s happening?

Well, I refer back to my 2014 prediction:

“What you see above is a market in a stubborn uptrend. A little overbought currently, and due for a correction, yes, but the uptrend is intact until proven otherwise.”

What you’re witnessing is that correction. Anything can happen, and I’m not saying Friday’s action was fun, but it was somewhat expected. To put things in perspective, let’s take a look at the longer term chart:

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That puts Friday’s drop into focus, doesn’t it? The S+P will have to do a lot worse than that before I change strategy- this is clearly a downward correction in a larger uptrend until proven otherwise (a ‘countertrend’). I’ve said it before, and I’ll say it again:

“The bull will do whatever he can to shake you off, and he often disguises himself as a bear.”

Dear reader, stocks don’t go up in straight lines. Now, a day like Friday can be useful though because it’s a chance to see what stocks were swimming naked when the tide goes out. In other words, it shakes out the weaker stocks from the stronger. Take a look at stocks that weren’t that badly affected on Friday. Or, even better, which stocks were UP like Microsoft.

For example, on September 2013 in this article, I said to take another bite out of Apple as it pulled back from its advance. The price then was $462, and the price now is $546. But on Friday it only gave up $10. And it didn’t break support, unlike the broader market.

So take a look around and perhaps use this as an opportunity to do some weeding in your portfolio. And let’s watch this bull closely as he plays his games with us…

Best,

Jim.

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