I met with several non-financial people this week, and it was interesting that the market became a subject of conversation, as it was more than the usual chit-chat because they know I’m involved in it, they actually wanted to ask about it, so it appears the market has become volatile enough that it has their attention.
What was even more intriguing however, was they associated it entirely with Ebola, and in the way that you might mention elements of the economy when talking about the market, they twinned the market and Ebola as if each twist and turn in the market was a reflection of the Ebola story.
Now to be fair, you can hardly blame them, because that is not dissimilar to how the media has portrayed it recently. The media will say they’re in an impossible situation as they can’t be seen to not be reporting on it, but if they do they get accused of scaremongering. It’s a fine line to walk for sure, but they’re clearly failing at it.
Sadly the truth is it’s inevitable that when people see panic over Ebola, and they also see stock market declines make the headlines, they immediately assign causality and link the two.
It’s also perhaps telling to see the suggestive symmetry that exists, that this move in the market is somehow seen as a panic commensurate with the panic surrounding Ebola. Which one do they see as a bigger more immediate threat I wonder? There are always risks in our lives, but clearly some much-needed perspective is in order.
I can’t help you out with the medical stuff, but I can certainly show you where we stand market-wise.
Here’s the updated Correction Roadmap for the S&P 500:-
As of Wednesday’s close the correction was 7.43% off the high close of 9/18. We put in a modest bounce on Thursday, and then had a huge rally Friday, although we did finish off the highs.
Is that it? I have no idea. Certainly a correction of around 7% would fit very neatly into the typical range of corrections, and it would look very similar to the last test of the 200-day MA two years ago.
The 200-day hasn’t started to roll over just yet, but it will likely start to make its first marginal prints lower in the next few days. At this point the bears would love nothing more than to see a test of that break that subsequently fails, and then a resumption lower, that if it occurred would likely lead to a very fast move down to around 1815.
This is because any new long rentals of the last few days are likely using the midweek lows as their stop, and any breach of those levels could lead to an air-pocket type of move as those that never sold on the initial decline join them in using it as their signal to bail.
But I am getting way ahead of myself. That is purely subjective opinion and just one potential scenario. We could just as easily continue on up in the now traditional ‘V’ shaped pattern that has so often followed these moves.
I had gone over a week without any exits, but his week’s volatility was enough to trigger five additional stops leaving just the strongest holdings and 30-40% cash. However there were also three new entries as some individual names continued to shine and show absolute strength despite the broad decline in the market.
Let’s look at some exits first:-
$TSLA had triggered an exit signal last Friday for Monday’s open, which ended up being the high print of the day leaving only a modest loss, and it never got close to recovering those levels the rest of the week.
$MSFT had also triggered an exit signal last Friday for Monday’s open having breached a trailing stop level.
$AAPL had been consolidating for over 5 weeks, and with the rest of the market falling as it continued to hold up relatively well the base of that consolidation became an all too obvious support level, a break of which took us out, and I suspect many others. It’s since recovered and may continue to do so, but this is a good example of the discipline required when trend following stocks. Sometimes you need to get out at what could be the low for a move. You just don’t know. We had a similar thing occur in $MSFT (see above chart) earlier in the year, but were able to re-enter when it recovered to fresh highs. Whether $AAPL will do the same or not remains to be seen.
The new entries were in $ED which had an impressive high-volume breakout and follow-through beyond our entry, $QLYS which has since retreated but which we’ve given a lot of room, and $CNSL with a high-volume breakout.
Let’s now turn to a few of our open positions:-
$BRK.B – Nothing to see here. Although it’s a second close marginally below its 10-wk, $BRK.B actually finished higher this week. On the daily chart it’s nestled between its 20 and 50-day MA’s, a safe distance from our stop.
$NKE was unchanged on the week, and is one of the few remaining names still above its rising MA’s.
$COST got hit hard this week, pulling back to the 10-week MA in a test of its breakout level, but it remains in between its 20 and 50-day MA’s and a relatively safe distance from our stop.
In terms of new opportunities there’s still a reasonable number of names on the watchlist. Utilities, which had dominated in the last couple of weeks have now pulled back, but healthcare, consumer goods, and consumer staples still have a strong showing. Within those areas, specific sectors like business services and specialty retail, such as beauty products feature prominently.
AMN Healthcare Svcs ($AHS)
Advance Auto Parts ($AAP)
Booz Allen ($BAH)
Sally Beauty ($SBH)