In Focus: Nervous Markets
Remember that it's a marathon. If you're looking at your portfolio value drop faster than you can think of what to do with your investments, remind yourself that investing is a marathon.
In November 2018 I didn't have all of the answers when the stock market started to sell off and my portfolio, as well as the companies we recommended in our quarterly newsletter were all down. What I had to remind myself during the panic is that it's not a sprint, it's a marathon.
But with all of that being said there is cause for concern. The Dow Jones Industrial Average had surpassed 29,000 just a few short weeks ago, and now it's trading below 26,000. The question investors are asking is how low will it go?
I have no luck timing markets, it's why I stay in a "go long" mode all of the time. For anyone telling you where the bottom is, take that advice with a grain of salt, everyone is just guessing, myself included.
We can and will look at charts of the Dow Jones and point out areas on the chart that represent significant support and resistance levels. Even using this method, investors should understand it's still a best guess. Because even at a significant level of support, the hope is that buyers find value at the level and pour their money into the markets to at least stabilize it. But again, it's a best guess, and no one knows what will happen at the price level once it's reached.
For example on the chart of the Dow Jones, the blue line represents the 200 day moving average for the market. It can serve as a significant level of support for markets and individual stocks. From the chart above you will notice the market has hit the line several times in the recent past and bounced off of it. The market has also played around the line for a weeks at a time before making a move up or down; and the market has also fallen below the line.
What makes the line significant is that when market pullbacks occur, a lot of attention gets paid to the markets or stocks hitting the 200 day average. Some investors are geared up to buy the pull back off the line. Others are selling out of very profitable positions in case the market drops more, others are preparing to go short on a major break below the line. This most recent test of the 200 day moving average was a win for the bears. The market dropped right through it.
The Current Position
The current position of the Dow is an interesting one. The Dow is currently at a support level the markets traded around back in August of 2018. Most recently the markets did break below this level of support on February 28, 2020, but since then has rallied back to the level. The market rally of last Monday and Wednesday, March 2 and March 4 respectively was a positive sign that there is money waiting to buy in at the level. But will this level hold? Again, it's a best guess for anyone.
The Dow traded down to this level and put in a pivot back on June 3, 2019, and on February 28, 2020 the market traded down to 26,281 and then put in a massive rally off the level. Again another good sign that there is money sitting at that level to buy into the markets.
This 24,680 area is a significant level because it served as support for the markets in late October of 2018 and late November of 2018. The level however didn't hold and the markets fell drastically. Which brings us to the scary thought that there may be another big drop in store for the markets?
Having an understanding of where the support and resistance levels of the markets are can help you better align your money with the big money on Wall Street. Even if you're a die-hard fundamentalist, you have to acknowledge these support levels are where both technical and fundamental analysts are finding value and entering the market, and it's a good practice to be aware of where the other money will enter the markets.
I want to close by stating again that these are all best guesses. If or when the Dow hits an area around 24,680 there is no telling what the news of the moment will be. It could be more bad news, which causes sellers to overwhelm the buyers, pushing the markets below that level. However, these levels represent a good point to nibble at the markets.
If there are companies on your buy list, the support levels are good places to make small investments and remind yourself it's a marathon.