The Health of the Markets
These are symptoms of a market in trouble
On Monday, the S&P 500 pushed above 1,120 to trigger stop-losses of the short-sellers.
Then the bulls rushed in … only to have the market suddenly collapse under their feet back under 1,120 then 1,100.
So are you bullish … bearish … or confused? I’ll tell you what I think:
This behaviour and other recent incidents like the recent “flash crash,” on May 6th are not symptoms of a healthy market.
Have a look at a monthly chart of the S&P 500
This chart shows Fibonacci retracements, common support and resistance lines used by technical analysts. The market bumped its head on overhead resistance and seems headed lower. Now, it doesn’t have to be a straight line. But you can bet that traders are looking at this chart and weighing it with poor fundamental news.
What fundamental news? I’m talking about stubbornly high unemployment … weakening retail sales … building permits falling off a cliff … decreasing mortgage applications …
This is the kind of news that will cause the S&P 500 and broad market to slide lower.
In this scary market, where should you be investing right now?
I don’t know if we’re in the early stages of a Depression. I do know that a lot of fuel for the U.S. market rally off the March 2009 lows came from the United States borrowing and spending $1.5 trillion a year, or 11% of GDP, for the last two years!
There’s a word for that kind of borrowing: Unsustainable! The markets may be coming to that conclusion. Along with worries over Europe, that could be one reason why the S&P 500 lost 10% of its value in just a month!
The good news is you can make money in a falling market — using put options, yes for every dollar a stock falls is a dollar profit in your pocket.
You can start with a little as a few hundred dollars.
I think you need to be careful if you are long-term trading or investing.
Ask yourself what stocks and funds you want to hold for the long term. Are they in your portfolio now? Are you holding some “losers” hoping they’ll come back? Maybe you should put that money to better use elsewhere, because come-back time may be a long way off.
It may be time to take profits on those holdings while they are there or
Did you know that you can insure your stocks yes with Put options just like the insurance we have on our cars if your car is worth less than your portfolio and you have no insurance on your portfolio, why are you taking unnecessary risk?
You may think you are a safe driver but what about the other drivers on the road we can’t control.
Trader Lyn
