Listen to the Market

I.C. Angles Investment Post…

A good stock market analyst looks for reasons a rising market could fall and a falling market could rise. On that note I have found and written about many reasons why this bull market could reverse. I have even gone so far as to declare risks of a bear market are rising. And I believe stock market returns over the next 3-5 years are likely to be poor. But I have not declared a bear market imminent or urged adopting a defensive portfolio posture. The reason for that is simple. I have been listening to this market and so far it has been saying stocks will keep rising. That might be changing as the market struggles to make meaningful gains since the Fed announced its exit from QE. But so far the benefit of doubt needs to be given to the bulls, as this market has managed to make higher highs. The price action remains positive, and buyers have been stepping in where they should to keep it that way.

In fact since the start of 2013 the stock market has been saying that buyers will keep setting higher highs and higher lows by stepping in to consistently support the stock market at its 125-day moving average. The below chart clearly shows buying support coming in at a level, which might seem arbitrary, but clearly has meant something to this market for well over a year. So, I’m going to listen to the market and not even consider becoming an outright bear, as long as buyers keep on holding the line—in this case the line in the chart where the 125-day moving average exists.

125Day2014

Source: Big Charts from MarketWatch

On the other hand, it’s not impossible for the market to plunge through the 125-day, like a knife through butter, or for it to fall below, find buying support at another level and for this bull market to continue. There are no sure things in the stock market, which is why given all the negative fundamentals I observe I advocated moving away from a very aggressive stock allocation. But if you listen to the market right now it is saying that this has become an important level and with it holding the market remains more likely to rise than fall in the near term.

 

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