However, for the last month or so, I have been buying the dip in this market and that has not paid off. As I will present in this post, the evidence is now building that this is not a dip in an uptrend, but the end of the trend itself.
First, let's take a look at a daily chart of the S&P 500:
While I do not know what will happen in the future for the market, here are some observations about the present that I have made:
- For the first time this year, the price has gapped down
- For the first time this year, the price has closed below the 50 day moving average
- The index has formed a lower high
- The index has formed a lower low
- The S&P 500 experienced its largest decline of the year this week
- This decline took place on the highest volume in over a year
All of the above statements are facts and cannot be argued. My own conclusion based on these facts is that being a buyer of stocks no longer puts the odds in my favour, which is why I dumped all of my equity positions on Friday morning.
Here is a daily chart of the Dow Jones:
If my six points were not convincing enough, subjectively, I could also argue that the Dow has formed an island top and also a bearish head and shoulders reversal pattern.
So, I'm out of stocks now, which does have its advantages. In my view, cash itself is a position, and going into cash when the odds of success move against you makes sense to me. This is a game that I only want to play when the odds are stacked in my favour - when that changes, I'm out.
