Global markets turned jittery this week – in some cases losing more than 2 percent in one day – amid debt problems in the U.S. and Europe and concerns about a slowdown in global economic growth.
In the U.S., for example, the S&P 500 Index, a common measure of broad market performance, fell 2.6 percent on Tuesday, its seventh straight decline. That’s the longest downward trend since the financial crisis of October 2008.
We are paying close attention to market developments. At this point, the daily volatility is merely noise and is not cause for alarm.
To keep the proper perspective, institutions and long-term investors like us focus on both the 50-day and 200-day moving averages to determine overall trends in the market. Both averages smooth out the market’s daily gyrations and provide a better view of where the market is headed.
As long as the 50-day moving average remains above the 200-day moving average, then the trend is positive and the odds are with us. It’s a good sign to remain invested.
Currently the 50-day moving average is above the 200-day moving average, although the gap between the two has been narrowing.
If the 50-day crosses below 200-day, it signifies that fear has taken over. If and when that happens, we must act very carefully – including potentially reducing our exposure in order to protect our gains.
Considering the way the market has acted historically, as well as how it has acted during the Great Recession and slow recovery, we will remain vigilant and ready to take action if conditions warrant a change in our strategy.
Meanwhile, if you have any questions, please feel free to contact me.
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