Trading signal occurs in SELECT model portfolio: Sell FSAIX, Buy FSLXX.
Stocks continued their weakness from last week and they got even weaker after S&P 500 index broke through the critical support level of 1040 on Wednesday. The S&P 500 index closed this week at 1022 down 5.03%, the Dow Jones Industrial Average decreased 4.51%, and the Nasdaq composite index lost 5.92% for the week. The question now is how long and how severe this "correction" will be, and whether this is going to turn into a bear market. S&P 500 index has lost 16% from its high of 1220 in April.
Last month, the S&P 500 index just fell below its tend line in the monthly chart signaling the end of the multi-year uptrend. At that time (blog dated 6/4), I said I would be cautious and move to the side line waiting for the development. That turns out to be the right call. From the monthly chart, the index is visibly below the trend line now and the momentum is heading south fast. Looking back from the chart, the last time when the index broke through its trend line, the down turn lasted about 18 months, and the one before that, the down turn lasted about 30 months. Although past history is no indication of future development, it is obvious that at this moment the downside risk greatly outweighs the up side, and reducing risk becomes number one priority. By moving to cash position, we will have the freedom and control when the uptrend returns.
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