With the exception of February this year, dips in this uptrend have been shallow. The market is setting us up with another opportunity to buy the dip.
Technical picture
The S&P 500 has spent the last few days pulling back, as expected:
The market peaked on 29th August, ironically the same day that I posted this message:
Markets never move in a straight line or in one direction forever, so a pullback was to be expected. However I am still receiving emails from readers and clients questioning why the market is pulling back.
Remember that the “why” is not important. Receiving an explanation for the small pullback we are seeing may provide some comfort to your intellect but it is very unlikely to increase your success in the market.
Healthy markets breathe
Remember too that a healthy market “breathes” in and out. Two-way movement is a good thing. Parabolic moves on the other hand are dangerous.
This market certainly has a way of making people feel uncomfortable, whether it’s going up or down. When the market is rising, people ask “surely it can’t keep going up, can it?” And when it’s falling they wonder “Is this the start of the bear market/crisis/crash?”
This is why it is better just to accept what the market offers rather than continually try to second guess what is going on. The market determines what is relevant or not, and it does so more reliably than the army of pundits, analysts and investors who feel it it their role to try and outwit the market.
Players will participate (or not) in the market based on their own interpretation of the news events of the day. However it is price action that confirms what is important and what isn’t -far more effectively than any individual can. This is why I always follow price.
The “news”
Human beings are hard-wired to expect that the recent past will continue into the future. This is part of the reason my trends and momentum form and can be remarkably persistent. However, during times of even minor stress, many investors choose not to pay attention to these patterns (or maybe they don’t know how?), and focus instead on news headlines.
Remember, news is just reality TV. It is NOT designed to inform. Like all television, news is a platform designed to deliver advertising. Most TV shows do this through entertainment. News does this through emotionally supercharging fear. Fear keeps us glued to the screen, which helps media networks sell advertising.
When’s the next recession again?
We are continuing to see calls for a recession in 2019. and if not 2019, then surely in 2020? Maybe they’re right, or maybe they’ll join the ranks of folk who predicted the exact same thing in 2014, 2015, 2016 and ever since February of this year. You’d think we’d get sick of reading about it!
Folks, when you get behind the wheel of your car, you don’t sit there and try and predict what potholes may be in the road 20 km ahead of you. if you SEE a pothole ahead of you while you’re driving, you make the necessary adjustments. Trying to predict the onset of the next recession is like trying to predict potholes. You are better off being vigilant for signs of a recession and making adjustments accordingly, than listening to some forecast.
Another bullish view
Yesterday I presented at a Trading and Investment Summit on the Gold Coast with Peter Switzer.
He made the very good point that Trump’s unpredictability would likely extend the duration of this bull market. We are seeing a lot of volatility from day to day, largely as a result of tariff announcements and trade deals at the moment. This volatility could potentially extend the life of this upward trend.
Peter remains bullish of the US and Aussie stock markets. Refreshing indeed to hear from a pundit who isn’t trying to scare people!
Where to from here?
With the exception of February, dips in this uptrend have been shallow. I expect this dip too will be quite shallow and may not have much further to go. I am looking to buy the dip! I’m keen to add some long exposure here, particularly in tech names that have been sold off. The earnings picture remains too strong for investors to get scared away from this sector.
September is seasonally a week month for the US market but I wouldn’t get too excited about that. Remember “sell in May”? Well the last four years in a row the market was higher during the May-September period, so these seasonal patterns are not something to swear by.
Another statistic that caught my eye: The S&P 500 was up five months in a row from April-August. Going back to 1950, this has happened 25 other times. 24 out of those 25 times the S&P 500 was higher 12 months later.
Remember to watch price action, take what the market has to offer and don’t get caught up in the news story du jour.
Point your canoe downstream and go with the flow! Good trading!