Friday Five at Five: August 18, 2023
1) Buy the Dip or Sell the Rip?
As I sit and write this (Friday afternoon), the S&P 500 is down about 5% for the month of August. During a “bull market” (upward market) there is old conventional wisdom that says “buy the dip”. If the stock market goes down, buy more, as it is assumed that the market will continue to go up shortly.
However, we are about to see if that conventional wisdom will hold true, or if investors are starting to “sell the rip” (waiting for the market to go back up to sell at a higher price).
I am a “technical” nerd when it comes to the S&P 500. The chart above shows me a few things that are not good for the direction of the market.
First and foremost, the S&P 500 has fallen below its 50 day moving average (yellow circle) and it is heading toward the 200 day moving average. The price needs to get above the 50-day moving average quickly or the momentum will shift to a “bear market” (a market that is 20% off (or more) from its high).
Also, the bottom of the chart shows that the MACD (moving average convergence divergence) which points another gloomy picture (red circle). The market has upward momentum when the black line is above the red line. The opposite is true as well. The market has downward momentum when the red line is above the black line. As you can see here, the red line is above the black line and they are both falling down to the right which is not good.
However, next week I feel that we will see more positive days than negative. This is due to the RSI (relative strength indicator) approaching 30 (green circle). A reading below 30 is considered an “oversold” market and the computer algorithms kick in to buy. (A reading above 70 is considered “over bought” and the algos kick in to sell).
If we go below 30 and the algorithms don’t buy, then there will not be much “rip” to sell into for awhile!
So, my belief is that the market will go up next week.
And then we will have to wait a week to see if the markets “sell the rip”!
2) VIX on the rise
The Volatility Index (VIX), also known as the “Fear Index”, has risen dramatically this week.
On Monday, the VIX was 14.99 and yesterday it closed at 18.58.
To put those numbers in perspective, anything above a 20 on the VIX is considered an all out panic in the market. It means that market fundamentals will not necessarily work as there are too many irrational investors moving money. So, next week will be crucial in seeing if we can get back to some normalcy and have the VIX come down, or if it will go above a 20 as panicked selling takes over.
3) HUMBLE BRAG: Tactical Models
With the new direction of the stock market for the past few weeks heading down, we would like to “brag” that our technical indicators predicted this move (See section #1 above).
Our tactical models suggested that all our tactical users move half of their stock positions into cash on August 1st. We have tactical models for Conservative, Moderate, Aggressive and 100% equity investors.
To put this in perspective, our Aggressive model is usually 80% stocks and 20% bonds. As of August 1st, we recommended that clients in the Aggressive model go to 40% stocks, 20% bonds and 40% in cash.
All our tactical clients received an email and “push notification” (if using our App) with the exact funds they should rebalance to.
Talk to your financial advisor if you would like to receive tactical advice for your 401k through Plan Confidence. If you don’t have an advisor (or if your advisor does not have an agreement with our firm) just use the Contact Us section and we will let you know how to get tactical advice for your 401k account).
4) School start / back to work
The picture above is me and my daughter from 9 years ago! (I was wearing a red Star Wars shirt and she made me change so as to not embarrass her. Apparently, Batman is way less embarrassing! LOL).
I have been an investment adviser since 1997. I used to work with retail clients up until 2017. One thing I remember is how slow I got over the summer. Partly due to my clients not wanting to meet over the summer with kids out of school and (seemed like everyone buy me) were taking vacations.
It seemed that the normal workday schedule was disrupted over the summer.
In many parts of the country children have started to go back to school. I know here in Sarasota FL all the kids went back last week.
I can also tell as my phone is starting to ring way more and my calendar is starting to get filled up again with appointments with financial advisors.
So, to all the kids going back to school, I wish you the best of luck and hope that you learn a lot this year.
And to all of us advisors getting back to a normal (busy) workday, I wish your coffee never runs out!
Why can’t you hear a pterodactyl going to the bathroom?
Because the “P” is silent
Kevin T Clark, RF™ is the CEO and Co-founder of Plan Confidence Corporation (PCC).
Kevin is also an ERISA Nerd and one of only a hundred Dalbar certified Registered Fiduciaries (RF) in the United States. He has been helping hard working Americans invest their money for over 25 years!
PCC is an SEC registered investment firm specializing in providing advice to hard-working Americans investing in their employer’s retirement plans (401k, 403b, TSP, etc).