As of Friday, November 4, 2016 at the close of trading EquitySurge™ has continued a strong buy signal for USA equities.
The S&P500 Index has fallen each day for something like 9 consecutive days, a feat it has not repeated apparently since 1980 or even longer. Is the world about to end? Are there riots in the streets and cities burning down? To read the popular press you’d think the end is near for Western Civilization.
What has happened in the stock market over the past week and a half is a quick and steep discounting for the many unknowns of a Donald Trump presidency. The stock market has effectively re-priced itself for the now-more-likely scenario of Trump winning following the shock surprise revelation of new FBI investigations in the Hillary Clinton personal email server case.
The S&P500 Index is now sitting atop its 200 day moving average after dropping roughly 5 percent from the late-Summer highs of around 2194. Fear is gripping the markets as the VIX Index, which measures volatility in the stock market, has soared higher over the past several days.
In addition to perching on the heavy support at the 200 day moving average, the S&P500 Index is also at the 423.6% Fibonacci extension down from those Summer highs, a very, very important Fibonacci number, and one that is highly unlikely to be broken meaningfully further to the downside.
Liquidity, which measure the flow of money into or out of the stock market, was making new high levels for 2016 leading up to the FBI announcement, a very bullish indication for higher stock prices to come. And while liquidity has certainly fallen steeply and sharply over the past several days, it is still at levels that support a continued bull market in stocks. It is not at this point saying anything other than to buy this dip, and while this indication could change, it is highly unlikely to do so.
What to do now as the election is only two days away? Our strategy remains to keep buying stock price weakness and use this 5 percent correction as an excellent opportunity to add to long positions. Only in the highly unlikely case of liquidity dropping significantly to the downside from current levels and changing its bullish signal to a sell stocks signal, would we even consider doing anything other than buying this dip.
Could stocks spike lower in a fear-induced climax to the downside in the immediate aftermath of the election? Yes, however such a spike down is very likely to be met with furious buying soon thereafter. Rather than trying to time a purchase in such a volatile and crazed environment, we will keep adding to longs before the election as the S&P500 Index rotates around the 200 day moving average and the 423.6% Fibonacci extension, which both reside around the 2080 level.
Warren Buffett once famously said that as an investor it is wise to be “Fearful when others are greedy and greedy when others are fearful.” Others are very fearful right now…
If you would like to review the EquitySurge™ trading signals generated so far in 2016 please see the Trading Signal Performance Chart page.