Let the Market Decide

On days like yesterday, I am often asked by readers what my indicators are currently pointing to on market indices and sectors. That is why on Tuesday I gave four scenarios for possible moves in the indices and the steps I would take in reaction to each scenario. Prior to that, over the past few weeks, I've said that my short-term indicators had turned positive, but intermediate- and long-term ones were not even close to changing, which led me to believe that a bear market bounce was near.

After we broke October's lows last Thursday and then reversed sharply higher at the end of the day, I was optimistic that a bounce could possibly start to occur this week. In fact, I said, "The key will be for the average to break above the upper resistance levels [over 1,000 for the S&P 500] in order to confirm today's [last Thursday's] reversal. If that happens, there may be a good opportunity for the indices to make it up near the 200-day moving average." (A move to the 200-day moving average would have been up around 1,250 on the S&P 500.) Obviously, that did not occur, and we plunged to new lows.

Specific money management rules and an investment and trading plan are so important to have so that you don't get caught up in emotional investing and trading. If you've been following my columns over the past year, you would have been completely out of the way of this year's crash. And even if you did some short-term probing with a small amount of your portfolio when my short-term indicators turned positive a couple of weeks ago, you would have been completely in cash again on Wednesday when the S&P 500 broke below last Thursday's low.

On Tuesday, I stated that an "absolute bottom will occur when investors want nothing to do with investing or talking about the market. I don't think that has happened yet, but I do know that most people are about as frustrated as you can get." After this week's crushing decline, fear has certainly taken hold, and that is a step in the right direction. The current problem isn't that we need capitulation; we need the forced selling in hedge funds to subside.

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At time of publication, Manning had no positions in the stocks mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.