The last week certainly falls into the not so easy category when it comes to investing. Equities of all types have sold off… hard. Small caps and technology have gotten the worst of it, but that is largely due to the blue chips and industrials underperformance over the past several weeks. All major indices have fallen from 5-10% in the rush to exit risk assets. The culprit is alleged to be a combination of the Covid-19 Omicron variant and the Federal Reserve’s position change on withdrawing some of its easy money policies to combat inflation. Well, I have been doing this for a long time and I can tell you that there will always be something that allegedly causes markets to go up or down. That is how humans are wired. We are programmed to need a defined reason for things. I believe the media knows this and takes full advantage of whatever seems to be the hot button item that is gathering the most attention. It is a vicious and painful cycle that investors (and all people with a smartphone) must live through. So with this reality in mind, I thought I would share my thoughts on the matter. First and foremost, I suggest that the vast majority of everything you hear is simply noise. Considered independently, every data point thrown at us is but a grain of sand on the beach… just a drop of water in the ocean. It is our belief that the sum is what matters, not the parts. Unfortunately, we are forced to constantly look at, hold and examine every part as if that part is itself the sum.
From a technical standpoint, the Dow (DIA) has dropped all the way down to its 200-day moving average, where it held and bounced. As stated above, that index has been underperforming for a while. The S&P 500 (SPY) and Nasdaq (QQQ) have pulled back to their respective 50-day moving averages, where they have also found support for the time being. The 50-day and 200-day moving averages are closely watched by many institutional investors. Normal pullbacks are thought to hold within these levels. The 200-day moving average is considered especially important. A sustained break below that would signal a change in trend from bullish to bearish conditions. As such, these are worth paying attention to. Today, the bulls continue to hold the high ground from a purely technical point of view.
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NOTE: The following charts represent ETFs that track the above mentioned major market indices.