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When in doubt, zoom out and confirm the long-term trend.
Last week, I tweeted that I’m staying open to the possibility of the S&P 500 Index retesting the 4,800 level. From current levels, a move to 4,800 would require an additional price decline of ~5%. So, I understand why some interpreted the statement as bearish. But the truth is, a move to 4,800 would place the S&P 500 Index right atop its 200-day moving average. The move itself would be perfectly normal and would not violate my long-term bullish thesis.
The tweet will act as a reminder to myself to remain open to continued downward price pressure - especially given the changes in interest rate expectations and the upcoming corporate earnings calendar.
Mentors of mine would tell me, “When in doubt, zoom out!” In other words, don’t become too sensitive to daily or weekly price movements. We want to define important levels but at the end of the day, stay true to the long-term trend. As I indicated previously, the long-term trend in US stocks is bullish. I don’t care how you define trend or what indicator you’re using. The trend is up.
It’s not just the S&P 500 Index, all major US indices are trading above an upward sloping 200-day moving average. Identifying long-term trends can help us ride through the uncomfortable emotions that accompany declining asset prices. Whether it’s a 5% pullback or 15% market correction, the long-term trend can help guide our decision making.
That’s enough out of me.
SM
Well written and “on point”