When it comes down to money management, predictions, projections, and economic policy have little place in the process. As is often the case in the markets we can choose to be right, or make money.
What I try to do with my investments are identify areas where momentum is turning. When momentum turns I want to participate. To do this successfully over time we have to make sure any losses that we accrue will be small and let our winners grow into strong gains. In order to achieve this we need to know the key swing points where monementum changes hands.
The SP500 declined -3.6% in Friday's session. That move alone likely caused many to act emotionally. While it's never fun to lose money, as long as we adhere to a successful process of cutting losses and running winners, over time we will come out ahead.
As of this week's close the market remains above the recent weekly higher low and it found support at the rising 20 Week SMA. As long as 2,025 holds I believe the market remains on firm footing. Should 2,025 be broken to the downside the risk posture changes in my opinion; 2,025 is one of those momentum swing points. Above that line Bulls still get the benefit. Below however means initial support has failed and many trapped buyers exist above. This creates resistance and is often difficult to overcome.
The Bulls need to step up in the face of this uncertainty and turn the momentum around. They will need to do so quickly as further downside could invite a flush back to the recent range lows.
Prior to Friday's rout there were many potential breakouts forming as the market was near all-time highs. With the strong decline most stocks took large hits and moved back below breakout levels. This leaves us with a pretty limited list to watch as we head into the end of June.
I know macro news events are scary and we want to guess what will happen next. But to have success long-term we need to be as objective and unbiased as possible. Following the price action won't work every time, show me a method that does. The best we can do is observe reality and align ourselves with the trends that are in place.
Depending on timeframe good stop locations are at $82.25, $84.12, and $88.24.
It should be noted how resilient the stock was on Friday's selloff. While the SP500 lost 3.6%, VZ trimmed less than .5%. This appears to be a different situation vs the drop in August as it was dragged down with the broad market. Holding this breakout would be a very strong sign that money continues to move into this space.
Should COST manage to hold this breakout into Thursday we will take a position against this month's low at $148.55. A failure to hold that would suggest a failed breakout and we would want to step aside.
Following the theme of Brexit "safe" stocks the remaining few watchlist names should be able to hold up well in the face of European unrest.
Utilities and Staples continue to have bullish trends due to their higher yields. With this week's news Fed Fund Futures posted a 0% chance of a July interest rate hike and actually a chance of a rate cut at the next Fed meeting. This will keep rates low and demand for higher yielding equities strong.
Bonds and Metals appear in fine shape as well. Commodities in general should hold up fairly well if the Dollar remains weak, which is a definite possibility given the current trends in place.
Banks are the clearest loser out of this deal. Most are now rolling over following violent throwback moves into broken prior support. While my call (view post here) for a decline was a bit early, it seems the next leg lower is now in motion.
Biotech also remains one of the weakest overall groups. Attribute any reasoning you want to it, be it high valuations, political pressure, etc. But simply following the price action will tell you what you ultimately need to know.
-In a nutshell the market remains in a long-term uptrend as well as an intermediate term uptrend. Volatility has returned as the resistance at prior highs has held once again. All we can do is try to position ourselves in the direction of the money flow. Currently that means high yielding/defensive stocks, US focused companies, metals/commodities, while Shorting Banks and Biotech.