Fox26: Market Correction & Fed
I spent a few minutes with Fox26 the other morning, while hosting "The Edd Hendee Show" on KSEV, to discuss the implications of the recent announcement by the Federal Reserve on plans to reduce bond buying and where the current correction is likely headed.
With the "initial sell" signal now in play it is likely that the current correction will go a bit further. I stated recently:
"This is a wake up call to pay attention to your portfolio. However, this is not a signal to "panic sell" and make emotional based investment mistakes. In this regard here are the actions that should be taken within portfolios.
1) Review all holdings in the portfolio fundamentally to determine if anything has changed within the fundamental storyline.
2) Review each positions weight relative to the portfolio. Assume that each position in a portfolio was 5%. Trim back positions that are now greater than 5% back to portfolio weight. (It is not uncommon that when a warning is issued that the market will continue to rise – therefore, we only want to trim profits currently and sell positions on bounces if trends become broken.)
3) Positions that are fundamentally broken, lagging or otherwise not performing should be sold in their entirety UNLESS they are a hedge against a correction. Positions that are lagging during a market rally tend to lead on a market decline. (This includes gold, gold miners, precious metals, etc.)
4) Do not sell winners to buy losers. Hold cash as a hedge against the coming correction. Notice that all warnings above are eventually followed by a sell signal and a market correction.
Notice that in the chart above the SELL Signals in the bottom most MACD indicator ALWAYS align with the signals of the other indicators. When all of these signals align it is always in conjunction with a more significant market correction. Currently, the indicators are issuing a very strong "warning" and it is likely that within the next couple of weeks we will see a deeper correction occur.
With support at 1600 now removed it is likely that we could see a retracement to the longer term moving average (red dashed line) above which is currently at 1525. A violation of that level and we have a whole new ball game to deal with."
I just updated that analysis in this past weekend's newsletter as well.