I’m writing this post on Friday night following the combined US, UK, and French attack on Syria. Depending on the response, if any, next week could be extremely volatile. Individual events tend not to “cause” long-term changes in the market trend. The reverse is actually true, though counterintuitive. The market tends to be a reflection of the state of society. With all 3 stock funds struggling at or near their respective 50DMA, the attack will be depicted as the “cause” of the market collapse if it happens next week. In reality, it appears that we were headed in that direction anyway.
AB = CD is a very common pattern. When multiple AB=CD patterns exist pointing to the same price area, the odds increase greatly. IF the 200DMA is broken to the downside next week then we are likely headed to the 2460 area on the S&P500 (C Fund). The 2 charts below show a POTENTIAL 1 year and 6 month AB=CD pattern. A close below the 200DMA will be the trigger. IF this pattern plays out, the 2460 area could be a great point to get back into the stock funds. We’ll see how it plays out…
The C fund could not get up to its 50DMA this week. I would like to see the get up to about the 2700 level before rolling over but, we may not get there…
The S fund was able to close just barely above its 50DMA on Thursday but Friday’s reversal pushed it back below this critical level.
The I fund had the most constructive week. It gapped up above its 50DMA on Tuesday and added to those gains throughout the week. Unfortunately, as the price moved higher, the volume was decreasing. The price chart is the primary driver but, rising prices on decreasing volume does not inspire confidence. Given the events of this weekend, I would expect the I fund to roll over with the rest of the market next week.
We’ve seen some very big market swings over the past several months. It could get even worse next week. What’s important to watch for is a CLOSE below the 200DMA. For anyone still fully invested in the stock funds, a close below the 200DMA is your last best time to protect 2016 and 2017 gains by utilizing the safety of the G fund.
Have a great week.