Who's In Charge? - Part 2

The selling in stocks accelerated this week and the major indices sliced through important areas of technical support that I pointed out in last week's email.

In the short to mid-term the bears are in control. Longer term, the bull market is still very much intact as the major indices are down less than 10%. 

The best way to show the damage that occurred is to look at the charts from last week. 

The S&P 500 (SPY) failed to hold above January's highs and closed just below the 200 day moving average despite a large relief rally on Friday.

The Russell 2000 (IWM) continued to lead the overall market lower, closing well below the 200 day moving average and plunging below major support. 

The combined chart of FAANG (FB+AAPL+AMZN+NFLX+GOOGL) which I pointed out last week as being important to the broad market, broke down before buyers stepped up limiting the damage. 

So now what? As it stands the S&P 500, DJIA and the NASDAQ are all near the 200 day moving average which has provided solid support since mid 2016. Volatility increased substantially last week which is to be expected when stocks get sold at an accelerated rate. I would expect the volatility to continue this week as the bulls and bears fight for the upper hand. 

The opinions and headlines become bipolar at times like this as some will call it a buying opportunity or the beginning of the end of the longest bull market in history. But guess what? No one knows. It's pure speculation at this point.

The way I see it, if stocks stabilize and start to move higher there will be plenty of time to participate in the continued up trend. If the volatility stays elevated and the selling continues, buying into the uncertainty wouldn't be prudent as it could be the beginning of a longer and deeper correction. 

Another reason I don't believe there's a rush to buy stocks right now, is that after steep declines the market will more often than not retest the lows. Take a look at the last two corrections in the S&P 500 (SPY)...

I also like to keep in mind what a 20% correction would look like. Keeping things in perspective and being open to the reality that this will eventually occur can help you prepare for the eventual deeper correction. 

MegaTrends

Below are five of the stronger trending stocks on my CM50 (Canadian MegaTrends) & UM50 (US MegaTrends) lists. 

Stocks in Canada and the US continued to get sold but this week the selling accelerated. Many of the strongest trending stocks went from suffering 5% corrections the prior week to closing this week down 15% or more. 

There were very few places to hide and not many stocks were showing upside momentum. However, the cannabis stocks held up surprisingly well and some even ended the week higher. Who would've guessed such a speculative industry to hold up so well in such a brutal week for the major indices. 

Remember that chasing stocks higher is not recommended and even the strongest trending stocks can experience significant drawdowns.