A Picture-Perfect Stock Market Perspective

When it comes to the stock market, pictures can tell us a whole lot.

Let me explain what I mean here by a reference to a popular song lyric that fans of new wave/80s rock will surely remember. It’s from The Cure’s 1989 hit, “Pictures of You.”

If only I’d thought of the right words
I wouldn’t be breaking apart
All my pictures of you…

OK, I can already hear you saying to yourself, “What does this song have to do with the crazy volatility in the stock market since last Friday?”

Well, because if we look at a “picture” of the broad measure of the domestic stock market, i.e. a chart of the S&P 500 Index, we see that despite the giant two-day plunge to begin the trading week, the index remains above critical support.

That support is the long-term, 200-day moving average (red line in the chart below).

Chart courtesy of StockCharts.com

As you can see, the past several days have been very difficult for the S&P 500, with the index plunging 3.35% on Monday and another 3.03% on Tuesday. That big decline pushed the broad measure of the domestic equity market well below its short-term, 50-day moving average.

Yet through the first three hours of morning trading, the S&P 500 has stabilized somewhat, a positive sign for this market no doubt. Yet even in today’s session, we’ve seen some very unsettling volatility.

Now, before you run out to call your broker, and before you are too tempted to go “breaking apart all those pictures” of the holdings in your portfolio (See how I brought that back to the song?), I recommend you remain steadfast in the face of adversity.

I say that, not because I want to cheerlead for this market. I don’t. What I do want you to take note of is that as of this writing, the S&P 500 is at 3,149.03. The 200-day moving average is at 3,045.87. That means we currently are approximately 3.3% above the key technical measure of the market, a measure that we can use to help tell us if this selling is extreme enough to exit core positions.

The way I see it, the pullback/correction in stocks over the past several trading days, while significant, has yet to trigger a wider sell trigger for your core domestic equity holdings.

That sell trigger is if the S&P 500 were to fall decisively below its 200-day moving average.

Of course, that trigger could easily come over the next several days, especially considering how hard, and how fast, this market has fallen on Monday and Tuesday. Still, if you are an investor with a timeline longer than just a few weeks (i.e. if you are not actively trading this market) then right now, this key technical indicator suggests you should remain in stocks.

Stated in lyrical terms, it means you shouldn’t be breaking apart all the pictures in your portfolio holdings just yet.

Finally, while looking at a key picture of the market via the S&P 500 and where it sits in relation to its 200-day moving average is important, this index alone doesn’t tell you precisely when to sell your medium-term and long-term equity holdings.

To know precisely when to sell your stocks, you need a plan such as the trend-following plan at the core of my Successful Investing advisory service.

We know precisely when to sell our stocks, because we have our proprietary “Safety Switch” in place that tells us when this market should be sold and when it’s safe to get back into the market after you sell.

During this period of heavy market volatility, you owe it to yourself to have a picture-picture stock market perspective — and that’s what you get with my Successful Investing advisory service.

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A Visit with Our Resident Guru of Happiness

Happiness isn’t easy. In fact, learning how to be happy can be one of the most difficult things a person can do.

In the new episode of the Way of the Renaissance Man podcast, I visit with our resident “guru of happiness,” the great Dr. Joel Wade.

Dr. Wade’s first podcast appearance on the show last year elicited some of the best comments we’ve had on any show, so I knew it was about time for another conversation with this exceptional individual.

Photo Courtesy of Unlock Your Wealth TV

In this episode, Dr. Wade and I discuss the history of the positive psychology movement, how he got started in the field and why this subject resonated with him as a young man.

The conversation then gets into details on how we all can implement practical techniques on how to increase happiness, including how to focus our minds on what actually makes us happy, and how to look at a problem from “the outside.” We also discuss why focusing on the negative is not a good problem-solving technique.

I’ve described this episode as another home run podcast for listeners, and I’m pretty sure you’ll agree after listening to this special man’s take on a very serious, yet critical, subject to us all.

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A Different ‘If’ Verse

If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss…
Yours is the Earth and everything that’s in it,   
And — which is more — you’ll be a Man, my son!

Whenever someone quotes from Rudyard Kipling’s classic “If,” they usually quote the opening line, “If you can keep your head when all about you are losing theirs and blaming it on you…” As much as I like this opening, I thought today’s quote from a little later in the work was a bit more appropriate.

Now, I am not advocating the above sentiment as an investment philosophy. Far from it. Yet what I do like about the thought expressed here is that it reminds us that whenever we risk capital, whether it’s in markets, or a business, or real estate, or even one turn of pitch-and-toss, we are subjecting ourselves to loss. Most of the time, the risk of loss is calculated and worth the risk. But if you do sustain a loss, then do so gracefully, continue to soldier on and start again. And, if you can keep your wits about you in the face of adversity, you will have what it takes to truly inherit the Earth and everything in it.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods