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The Fun Police have shut down the recovery party
Comments from a hawkish Fed Chair Jerome Powell about increasing interest rates faster and higher-for-longer have knee-capped markets this week. This bearish tone was intensified by Friday's Silicon Valley Bank shut down by the regulators. I even spotted the word "contagion" being suggested in the headlines. I haven't heard that word said about the markets in a long while.

The S&P 500 index suffered a series of strong downward moves this week to close below the all important 200-Day SMA:

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It was a tough week at the office. This bearish tone was felt across the board with a large drop in the percentage of stocks trading above their 200-Day SMA. A value below 50% is not good. We're trending the wrong way.

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We can sum this up by saying the fun police crashed the disco, turned the volume down, turned off the mirrorball, shuttered the cocktail bar, and now the DJ has resorted to playing sad ballads. There's an atmosphere of melancholy among the party goers and there's no telling how long this gloom will last.

By now, everyone should be realising chart technicals have limited predictive reliability in a choppy, macro-news driven market. At the best of times, chart technicals just conform what you already know. In this case, there's been a short-term reversal and the short-term trend is now bearish. We plunged below the much-observed 200-Day SMA and the next important level to watch is 3,800. If we drop below that level and the news continues to be gloomy, we could make a run for the October 2022 lows. But this is far from certain because it's a choppy battleground market and bulls and bears are still duking it out. The short-term downtrend could reverse just as quickly if we happen upon better than expected news. Every prediction of market direction and future market levels is really just speculation. There might be ample data to support the prediction, but you can always find just as much data supporting the contrary view. This is why market forecasting is so hard.

Long-term investors know this is all part of the deal. We have to endure the volatility, stay resolute with our process and not succumb to the day-to-day headline risk:

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I've always loved the word "smoked". Sums up my thoughts when I log into my brokerage account and look at a sea of red.
The recommendation for long-term investors is, and always will be, stick to your investment rules. You will get rewarded for consistency of behaviour, later. Sometimes it's a lot later.

Nathan Worden's avatar
A month ago people were feeling good. Things can turn quickly. Today the Fear and Greed index went 'Extreme Fear'
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Jazzi Young's avatar
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