Friday, November 21st, 2008...1:45 am
If the Trendline Breaks, I’ll Meet You in the Mountains ($SPY)
by Ren Richardson
Today’s move on the S&P dropped us below 2002’s lows. Funny how we’ve declined about 13% in two days and yet the coverage doesn’t seem as shocked or as dire as it did late Sep/early Oct. A number of traders/managers have remarked that they consider it rather scary we have taken out 2002’s lows. But we still have yet to witness real panic selling. Fear is present but not capitulation. The drops have been, for the most part, too methodical, too orderly. However, this move below that key support might trigger automatic sells and if it does lead in any way to downdraft selling, I would be a buyer. (Brian adds: agreed. It’s eerie that we’ve had no trading halts or circuit breakers.)
Everyone thought that Oct lows would be putting in a bottom. (I was buying afternoon of 10/10 but when the rally didn’t follow through, I got out.) The tape is anemic, it’s unhealthy. But now that we have taken out that bottom, any panic selling could be a good entry time since everyone is expecting further declines now. You know my belief, however. We could get a stong rally out of this support break….but longer term I think we have no reason to sustain it.
The long term trend line on the S&P going back to 1932 is at approx 540-560 now (see attached graph). Every time we have tested that line (4 times in the worst bear markets since then) has been, obviously, a great time to buy stock. I don’t see us reaching that trend line in this current decline. But I certainly think it is possible we could reach it in 2009.
Be a trader-buyer on fear selling here. This is what usually produces big rallies. But be a long term investor if we get down to that trendline. If we break the trendline, buy a tent, a ham radio, fuel, and I’ll meet you in the mountains.
