When I got home late last night from teaching technical analysis at Baruch College, my wife relayed questions about the stock market from her weekly mahjong game. When the stock market falls sharply you see the same reaction -- people want to know what is going on, what is causing this decline? Somehow some insight into why will calm the acid in your stomach.
Maybe you can shift through the noise and numbers and decide on what is driving millions of investors but I find it folly. I get the question from professionals, people who have been in the security business for years.
If I say the stock market is going down to the middle of November they want to know what level on the S&P or the DJIA. If you know the timing and the direction why do you need the level? Levels can be broken. If I gave you a level of 1,000 and the market goes to 950 you are annoyed that you could have bought it lower. If it stops at 1,050 and goes up you are really annoyed that it did not reach your limit orders.
Understand what I am saying?
Let's look at some charts and indicators.
In this daily bar chart of the S&P 500 Index, below, you can see the price damage so far this month. Prices are below the cresting 50-day average line and now the rising 200-day line. The daily On-Balance-Volume (OBV) has been declining since the middle of September telling me that sellers have been more aggressive for a while and not just since Wednesday. The Moving Average Convergence Divergence (MACD) oscillator is below the zero line now for a sell signal.
In this weekly bar chart of the S&P 500 Index, below, prices are below the 40-week moving average line (the chart is not updated yet). The weekly OBV line is pointing down and the MACD oscillator has crossed to a take profits sell signal.
In this Point and Figure chart of the S&P 500, below, we do not (yet) have a downside price target, but a decline to 2,676 will probably generate one.
In this chart from Bloomberg is the NYSE Cumulative Advance/Decline line. This is a measure of the breadth of the advance and it shows through Tuesday that more stocks have been going down than up. This is not 30 stocks or 100 stocks or even 500 stocks. The broader market of over 3,000 issues has been weakening for a while now.
Bottom-line strategy: The market has turned down and looking for reasons is not a strategy in my mind. I think this decline could last until the turkey is about to go into the oven. The market pundits need to change their tune from "buy the dip" to "why did I buy the dip?" -- we need to see some pessimism.
Don't email me questions about what level. Let's just wait for some blood in the streets.