I have lived through many market declines since the 60s. The current decline is small and yet the omniscient media cry out that a market crash has occurred. No one knows how long the current decline will last and it is possible that it is at the beginning, rather than the end. I have to wait until Mr. Market signals the beginning of a new significant up-trend. Until then, I remain largely in cash and willing to wait. Very few stocks are reaching all-time highs, so the odds are against my profiting from buying such break-outs now. As you know, I prefer stocks trading at ATHs. There were only 8 such US stocks, out of 6100, on Friday. I always look at the list each day, however, because when the market does turn, new leaders appear among the stocks breaking out to ATHs. That is how in 2009, after the market debacle, I found GMCR making an ATH, a green line break-out, GLB, which then became a 13 bagger. Think about it. If a stock can climb to an ATH after the market has been decimated, is that stock not showing incredible relative strength? Traders knew something. GMCR was launching its Keurig coffee makers and the stock’s action told me traders knew something.
When the market turns, I will see the 10 week average of the major indexes rising above their 30 week averages. The first sign will occur if the major indexes can close back above their critical 30 week averages. See the weekly chart of SPY below. The gray line shows the weekly closes and the first sign of weakness is a close below the 30 week average, indicating a possible Weinstein Stage 3 or 4. When the 30 week average (solid red line) turns down, it tells me we are likely in a major Stage 4 decline. I know this rule seems too simple, but it has helped me to avoid huge declines when the market has swooned.
