Stock Market Update
Short-term, the market is in correction mode. The big questions are: is this merely a short-term correction within a longer-term bull market or is this something more ominous – the stock market entering a longer-term period of decline or bear market?
Last week I highlighted a couple of market technicals that were suggesting that the market is exhibiting some internal strength that would seem to put the odds in favor of the former.
Today lets look at price action for the market, because we are at a key area of support and if stocks fall below this level, it would require me to reevaluate my bullish bias.
As you can see from the chart of the S&P 500 below, the index has fallen from its January high, bounced off its 200-day moving average, and fell again, ending up right at this average at today’s close. The shaded area is support and if the market does end up dropping below this level, it would inflict significant technical damage to price action and would be a major cause of concern.
I am still of the belief that the weight of the evidence is suggesting that the broad market is only correcting and we are still in a bull market; however, the market does need to bounce from here to not fall below a key level of support.
The Bottom Line
Positive for Stocks and Commodity Prices
Negative for Interest Rate Sensitive Bonds
• Short-term, the market is correcting. The market is at an inflection point, and any weakness from this point would be very bearish for the broader stock market.
• Long-term, the weight of the evidence continues to be bullish for stocks. At some point, this will change and when it does, I will have no problem flipping to a bearish bias and reallocating client accounts to a more defensive posture. However, market technicals continue to signal that we are in a bull market and thus we should be invested in stocks aggressively.
I continue to view stock market risk as low, thus our accounts have high stock market exposure.
I have not made any major changes to our client accounts this year.
We do not hold any interest rate sensitive bond funds.
Craig Thompson, ChFC
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