SPDR S&P 500 (SPY)

[Schneidku40]

Well I'd say it depends on your strategy. If you're trying to pick a bottom then yeah you look for some horizontal price support. In my personal experience I have been bad at that and instead find I have better luck watching the market bounce back up sufficiently and then look at that bottom and see if there's a reason it makes sense. It's more of a reactive strategy than proactive. Regardless, if you sold recently and the price is lower than it was when you bought, it's a good place to buy again. I did this a few months ago with my wife's IRA when I thought the price was about to dip. Sold all her index fund holdings, the price dropped 5%, and I bought back in with everything. I didn't catch the bottom, but I wasn't trying to. That simple 2-3 day move that saved 5% means her returns are 5% higher at the end of the year than they would have been. Why chase that maybe extra 2-3% down when the market could jump at any moment and erase that whole 5% difference?

anyway, there are a bunch of ways to try and see when the market has or will bottom. You've probably seen some displayed on this board. Some people use moving averages, some channels, some horizontal lines. I watch a lot of things, which sometimes confuses me, I'll admit. But I like to watch the Dow Jones and S&P500 in conjuction. For something relevant to right now, I'll use the 50dma. Dow broke the 50dma Friday but SP500 held it on the close. The 50dma has played a pretty important role this year. I've annotated 7 instances this year, the same days on both SP500 and DJI.

1- Both gapped below 50dma. Very bad, as we now know. But that was the start of the big dip.
2- Dow Jones back tested 50dma, SPX stayed above. Since both didn't break, Dow backtest of 50dma held as support.
3- Both backtested 50dma. Both held as support.
4- Dow backtested 50dma, SPX stayed above. Since both didn't break, DOW held as support.
5- Both failed 50dma. More down to come, but how much more is in question.
6- Both failed 50dma. More down to come, but how much more is in question.
7- Last Friday, Dow broke 50dma but SPX has held. Since both didn't break, SPX so far holding as support.




Now to talk about 5-6 since they both broke 50dma support, where would the bottom be? It didn't go down much farther as SPX hit support at 3200, which was the top of the June peak as you can see. At that point it's irrelevant what Dow is at since one of the two found support. SPX is a lot more tech-heavy than Dow is, and with tech on such a run over the last year it's not a surprise that SPX was generally the one higher than Dow relative to these supports and that it was the Dow that provided some of the backtests while SPX stayed above. But those are some things I've learned that if you don't watch both, you could miss details. For some reason the Dow still gives me most of the best overall signals.

But, I am also very aware that these signals are very market-specific. By market I don't just mean equities, I mean the market changes over time. When it's in a big bull like now, it's a little easier. But, for example, take 2015. It was a sideways market and it was a nightmare other than maybe just playing some horizontal channels.