2016 begins very bearishly, and the selling continued this morning.
Let’s focus on the Dow Jones and the S&P 500, pinpointing the key levels and what decisions we need to make for adjustments.
Here’s the Dow Jones into 2016:
The Dow Jones peaked in early 2015 above 18,000 which is a key reference level for traders and investors.
A large sell-swing collapsed price under 16,000 to the rising 200 week Simple Moving Average (red).
From here, buyers bounced the market higher to end 2015 back at the 18,000 level.
What’s most important to us all now is the quick movement down away from 18,000 toward the new reference level on which we focus our attention: 17,000.
I drew a rounded arc trendline for your to highlight the distribution and change in trend from bull (up) to a possible new bear (down).
If we see the Dow Jones trade under 17,000 this January – soon – then we’ll expect another similar sell-swing down toward the 16,000 level like we saw in the middle of 2015.
You would want to be protective or defensive if this is the case.
Switch to protective and defensive strategies as long as the Dow Jones is under 17,000.
We would not look to add new positions (buy stocks) until the index is back above 17,000 or preferably when it trades back down 1,000 points lower into 16,000.
We will of course update you along the way about which strategies, stocks, ETFs, and tactics to use.
Here is the same picture in the S&P 500 Index if you prefer to use this as your benchmark index:
Like the Dow Jones, we see the same type of Arc or semi-circle price pattern at the 2,100 high.
Stocks peaked in early 2015 above 2,100, collapsed in August 2015 down to 1,900, and then recovered later back to the 2,100 level.
December and now early January give us another sharp decline in the S&P 500 toward 2,000.
Like the 19,000 level in the Dow Jones, use 2,000 for your key reference in the S&P 500.
If we continue to see the index beneath 2,000, we would preserve and protect capital, take profits on stocks that may also be breaking key support levels, and wait until the market trades lower before buying new stocks for our portfolio.
This is a quick perspective on the key levels and how we will be adjusting our strategies – keep checking back for more updates and recommendations on specific stocks.
Follow along with members of the Afraid to Trade Premium Membership for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Afraid to Trade.com
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