Here’s a very brief history of price action on the S&P 500 stock market index, from which we can make comparisons and gauge this month’s stock market activity.
After trading sideways for just over two years, the S&P 500 broke past upside resistance at 2,130 in early July 2016.
If you want a little more helpful info, take a look at the price chart just before the July 2016 breakout. You see that quick and deep downward spike in the index? That was the brief market turmoil surrounding the Brexit vote. More importantly, that chart pattern is called a shakeout, and it very typically precedes an almost-immediate upside breakout in a price chart—whether we’re looking at a chart for a stock, a market index, a currency, etc.
The S&P 500 then rose to about 2,190 in August 2016, representing 2.8% move. The index then traded sideways, finally breaking out again in mid-November 2016. The index subsequently rose to about 2,400 on March 1, 2017, representing a 13.2% increase in the S&P 500 since the July 2016 breakout.
If possible, try to follow stock price movement on price charts, which you can locate at StockCharts.com. The more you understand that there’s “a method to the madness,” the more relaxed you will be about the ups and downs of the stock market.
The next two questions become:
- How normal is a 13.2% increase in the S&P 500 index in eight months?
- Should I be worried?
First off, don’t worry. There’s nothing abnormal happening. U.S. stock markets tend to rise approximately 20%-30% in two out of every five years. The other years tend to present us with much smaller annual increases or even losses. We have not had a 20%+ year in the S&P 500 index since 2013.
That tells us that (a) we are overdue for a big year in the S&P 500, and (b) the 13.2% gain since July 2016 is not abnormal.
Phew! That’s a relief!
So what’s happening now? Well, stocks don’t go straight up. Stocks and market indexes bounce around, whether the general trend is up, down or sideways. We need to just accept that and either turn off the TV or go shopping for bargains to add to our portfolios.
I’m receiving emails from subscribers who want to “buy low.” The pullback on the S&P 500 has been small, and it hasn’t bottomed yet. We could relatively easily see the S&P fall to about 2,275 before it rebounds. That would be a normal price correction, from which the market could rebound with two to six weeks.
It’s a little premature to buy low now because most stocks that are having pullbacks have not bottomed yet. In that light, here are some rough support levels on some of my Buy-rated stocks—good prices at which to buy.
Dollar Tree (DLTR) 73-75
Johnson Controls (JCI) 40.50-41.50
Martin Marietta Materials (MLM) 205-210
Quanta Services (PWR) 34-35
XL Group (XL) 39.50
BP plc (BP) 33.50
Blackstone Group (BX) 28.50-29
ExxonMobil (XOM) 81-82
Whirlpool (WHR) 165-170
Boise Cascade (BCC) 25-26
Legg Mason (LM) 33-34
Mattel (MAT) 25
Schnitzer Steel (SCHN) 20
Tesoro (TSO) 79
Thermon Group (THR) 18.50-19.00
Total (TOT) 48-49
Vertex Pharmaceuticals (VRTX) 84-86
When it’s obvious to me that the stock market is beginning a price correction, I usually wait for the market indexes to stabilize after the fall before I start buying. Granted, sometimes the rebound happens within days, but usually the market is low for a couple of weeks, giving me plenty of time to go shopping.
If there’s a portfolio stock that I didn’t mention above, the price chart was probably too vague today. Feel free to ask me again in a few days.
By the way, I know that newscasters commonly tie in stock market action to popular economic and political news, but I tend to see their occurrences as coincidental, and not necessarily related to each other. The market was due for a correction, and now it’s happening. Good. The sooner we get past the correction, the sooner we’ll again see market advances!