Founder & Chairman
I was watching golf this weekend, and seeing Tiger Woods play great for 3 days, then fall precipitously on the last, reminded me a bit of the stock market lately. It had a nice little run, but when things turn, they turn quickly. Perhaps also like golf, you have to have a strategy and stick to it when things start to go awry. As humans, we are always looking for answers to help make sense of things, particularly when things get difficult—we want to know why. Sometimes, however, there may not be an answer, or at least not an obvious one, and we have to be careful not jump to conclusions or blindly assume that just because someone on TV speaks as if they know the answers, they do. The fact is, the stock market is complicated, and while it would be silly to think that current events or even the latest headlines don’t have an impact, it is equally as silly to assume that due to current events, the direction of the stock market is a given, and that anyone knows exactly where it is going. History is littered with stunning examples of “sure things” gone wrong, and the poor souls whose fortunes have been lost and lives changed forever.
The reason should be fairly obvious as to why we are writing this letter. The Dow Jones Industrial Average has fallen by more than 1000 points in the last three days. While that is a spectacular three day plummet, on a percentage basis it represents just a tad over 5%. In 1987, the Dow fell by almost 20% one day, so while it’s not much fun to ride out, from a longer-term perspective, it’s just a blip on history’s radar. I don’t intend to be dismissive here, the fact is we have no idea where this could go, and while there is potential for this drop to continue, and possibly to even intensify, our systems have not triggered a sell signal at this point. As I write this Monday morning at 7:00am, the futures are down another 550 points, so it appears the selling continues today. As mentioned above, this is exactly why we have a system, to prevent us from making impulsive decisions based on emotion. We have been monitoring the algorithm on a daily basis, and indeed it has been moving closer to a sell signal, but we are not there yet. It should also be noted that we’ve been in this territory a few times over the last 5 years and the last sell signal was issued in 2011.
There is fairly strong technical support for the S&P 500 that we may test in the next week or two. That support level will tell us more about where things might be headed. If it holds, that would be a good sign, of course, and if not—well you get the idea. There is no reason to guess what happens at this point, just rest assured that we are on top of the situation, and we are ready to take action if necessary. In the meantime, this seems like a gratuitous opportunity to remind you why you hired us. We have a proven system in place that has a good track record of identifying more serious stock market downturns in the early stages, and equally as important, has a good track record of not having an itchy trigger finger. The system has done a good job of keeping investors committed to the equity markets when it would have been easy to bail out. It is always better to have a system than not, especially a good one. Now go back to playing golf, cutting the grass, playing with the grandkids or whatever activities make you happy, and take comfort in the notion that your money is in good hands.
Visit www.sawchukwealth.com to review past issues of The Marketview.
Securities offered through First Allied Securities, Inc., A Registered Broker/Dealer, Member FINRA/SIPC. Advisory services offered through First Allied Advisory Services, Inc. A Registered Investment Adviser.
* All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.
* The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Consult your financial professional before making any investment decision.
- Past performance does not guarantee future results.