The first 5 days of the year were not a good sign for the stock market considering the loss for the week was over 6%. The stock market lost over 1 trillion dollars for the first week of the year. The first 4 days of the year has the dubious distinction of being the worst opening first 4 day start in the history of the stock market. So, should you be concerned?
There is a long list of issues that are forcing the stock market lower. I would rather just look at a picture of the stock market and see what the price levels have to say. The price level of the S&P 500 is always moving either higher or lower. On Friday, it ended the week at a price level of 1922. So, what price levels are the warning signs?
First let me tell you what you are looking at. This is a picture of the S&P 500 since February 2014. You can see it has been a wild ride really going nowhere. I have indicated on the chart the two price levels of concern. First, is what I call warning 1. That is price level 1856. If the S&P 500 falls below that price level and stays below it, the stock market could be telling us that there is trouble on the way.
The real line in the sand is 1707. Below that level would be a confirmed bear market. Any selling below that level could intensify creating large losses.
The good news is that at this point we are just experiencing what is referred to as a correction. Those are normal and occur in any bull market. The bad news is that we opened up the year like we did and are heading rather quickly towards some important price levels.
The key is not to make emotional decisions and just make sure you know what your Plan B looks like. If this gets out of control, it could develop into one ugly bear market. You wouldn’t want to be Plan A investing in a Plan B world.
If you have questions about what a Plan B looks like, feel free to email me at firstname.lastname@example.org. Make sure and stay tuned to the blog and the radio show. I will keep everyone posted with any further developments.
Keep the Faith