The above title is not a recipe for investment success. But, in this environment we all have less than a coin flips chance of making money on any of the stocks we buy.
This week’s update is going to be short. The reason for the brevity is that I want the few paragraphs I write to hit home. As we entered May the market was hitting new highs and 70% of the stocks in the S&P 500 were in good shape technically. In that environment you can generate excellent returns. How quickly things can change. Now just 41% of the stocks in the S&P 500 are either basing or advancing. Only 37% of small cap stocks are attractive to buy. So, clearly it is time to focus on selling underperformers and reducing the risk of your portfolio.
The long term trend has significantly deteriorated over the past six weeks. The S&P 500 is now flirting with its 200 day moving average, 1253. Whenever you start talking about the 200 day you know things are dicey. The Dow and NASDAQ are also flirting with their respective 200 day moving averages 11,687 and 2658 respectively. If these levels do not hold the selling will intensify and the market selloff will accelerate.
Often the 200 day moving average leads to at least a temporary bounce for stocks or broader market indexes. If selling intensifies at these levels of support and the VIX spikes over 20 the market will get hit even harder.
The 52 week low lists have been significantly longer than 52 week highs for the past several sessions. The spike in selling with each attempted rally last week underscores the weakness in the market. Near term technical indicators do not point to a rosy week ahead of us either.
Focus on the 200 day moving averages I give above and react decisively if there is further weakness at support. Continued selling at these levels will be a signal that this will be a brutal summer for the markets.
