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John Rothe is CEO & Founder of Riverbend Investment Management. John founded Riverbend in 2006 to provide institutional style investment management to individual investors. Prior to starting the firm, John was a Vice President & OMEGA Portfolio Manager with Oppenheimer & Co., and... More
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  • Couple Of Thoughts On The Market…  1 comment
    Nov 9, 2012 9:59 AM | about stocks: SPY, QQQ

    I'm seeing numerous comments about how Obama's reelection has caused the market to go into a tailspin. The truth of the matter is the market was starting to look weak before the election. And now, with the election over, the media has put its focus back on the problems we were all worrying about last Spring - mainly the fiscal cliff and Europe.

    This of course, is starting to worry traders and fund managers who want to protect their gains from this year. Unfortunately, especially for the buy and hold crowd, this may mean we are about to enter another down cycle in the markets.

    First off, the big concern that market watchers are looking at today is the break of the S&P 500′s 200 moving day average:

    (click to enlarge)

    For those who are not too familiar with the 200 day moving average:

    From Investopedia

    Moving averages are a powerful tool for analyzing the trend in a security. They provide useful support and resistance points and are very easy to use. The most common time frames that are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is thought to be a good measure of a trading year, a 100-day average of a half a year, a 50-day average of a quarter of a year, a 20-day average of a month and 10-day average of two weeks.

    Moving averages help technical traders smooth out some of the noise that is found in day-to-day price movements, giving traders a clearer view of the price trend. So far we have been focused on price movement, through charts and averages. In the next section, we'll look at some other techniques used to confirm price movement and patterns.

    In addition, US Treasuries have broken above the 200 day moving average. This indicates that money is being moved into safe haven investments:

    (click to enlarge)

    The VIX (aka the "fear gauge") is also showing a breakout - indicating that volatility in the market is rising:

    (click to enlarge)

    So the million dollar question is: Short term selloff, or will this be a much larger decline?

    If we take a look at the long term chart of the VIX, we can see that the downtrend since the last market decline is still in place. If that trend is broken, I think we will see a larger decline.

    (click to enlarge)

    One last comment - notice the VIX levels are still low. This means that investors are not in panic mode yet. If investors start to panic and the VIX jumps towards its highs, the market could quickly erase this years gains.

    Be careful and happy trading

    -John

    PS: If you are interested in how the ARTAIS model is allocated, feel free to email me at "john AT riverbendinvestments.com"

    Themes: 200 SMA Stocks: SPY, QQQ
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  • swashplate
    , contributor
    Comments (116) | Send Message
     
    I sent this message to a friend at the end of June: "Daily Chart"
    100% of the time for past 10 yrs when the technical indicator 20SMA crossed below 50SMA the S&P went lower, "below the 200 SMA" within the 6 months. 70% of the time the market will go up to turn back down. S&P was at $1,613.20 on June 27, 2013, it has a 70% of going up short term, but 100% chance of being lower than that within 6 months or less. According to all daily data over 10 yrs. Also the S&P has not dipped below the 200 day SMA yet this year. I say watch the S&P has a good chance to hit a new high if it closes above the 50SMA after the 20 and 50 cross. Also what ever the closing price is on the day the 20SMA closes below the 50SMA the first time after it crossed above 200SMA the S&P will be less than that below the 200SMA in less than 6 months, sometimes a lot lot faster. I say the S&P will be below $1613.20 this year, most likely below $1590.00 for a good buy to see if we still go up. Fear moves faster down than greed moves up. But, over history the bulls are in charge long term.
    What do you think?
    29 Jul 2013, 02:21 PM Reply Like
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