Cart (0)
business newsA Potential Correction Is on the Horizon
While awareness is heightened by overbought indicators, the short-term trend has yet to be broken.
PRINT
– Tyron Edwards
“Jabber Jawing” -- two weeks ago the discussion was the Dow Jones Industrial Average’s (^DJI) new high potential. Last week it was the “Golden Cross.” What’s this week’s theme gonna be -- the new bull market or market overbought? Before entertaining either of these ideas, let’s recap some of our recent missives.
January 2012 Recap:
- 2011 closed even and remains below bear trend.
- Tape psychology at the beginning of the year (first moves) can be tricky.
- If bulls take control, our technical stance will immediately shift. If so, expect a rally toward 1,350 – the top of 2011’s Channel of Indecision.
- More stocks showing technical strength, but SPX still showing weekly Converging Resistance at 1,350.
- The 1,350 level – top of 2011’s Channel of Indecision – will be the true test of what’s in store for 2012.
Before making such decisions -- ascertaining portfolio weighting and determining allocation shifts -- investors should employ three simple tasks.
First, determine which area they inhabit (short-term, intermediate-term or long-term). Second, investors should never anticipate; only evaluate. Otherwise stated, assess the probability of what the market will most likely do, based on a compilation of evidence available, and wait for it to complete before taking action. And third, be decisive -- when you’ve determined what plan of action to take, don’t second-guess when the time arrives.
As the S&P 500 Index (SPX) is coming up to resistance at 1,350, awareness is heightened for a potential correction. Overbought indicators are reading highs and potential divergences. The index distance from its moving averages is nearing smaller parabolic levels. And lastly, volume is not currently indicating strength. However, and most importantly, the short-term (momentum/swing) trend has yet to be broken.
Click to enlarge
So, what to do? By using the aforementioned three simple rules, ascertain probability of break (done above), decide what shift (stance) to take if occurs, and be decisive when it happens. Otherwise, status quo -- the trend is your friend.
As simple as this sounds, you would be amazed at the number of investors (professional and individual alike) who get caught up in the emotion and make decisions based on anticipation of a potential happening that never occurs. Emotion is the investor’s worst enemy. If you cannot learn to control it -- find someone who can.
As my team constantly discusses, self-awareness (relinquishing of pride) is not only the hardest attribute to accomplish as a professional portfolio manager, it is the most important. It’s easy to blame everything else on why things transpired the way they did. Wall Street is full of those. To separate from such, you have to know the "Man in the Mirror.”
I hope this helps.
Editor's Note: Read more at Tuttle Asset Management.
Twitter: @TAM_News
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
