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S&P 500 Weekly Update: A Good Dose Of Fear And A Void In Common Sense


  • While a potential warning, an inverted yield curve is NOT a reason to sell stocks.
  • Rumors, innuendos, and tweets are swirling around now like a high school study hall; it is ALL NOISE.
  • Opportunity is created when the majority sell first and react later. The recent price action is filled with FEAR.
  • Fear and Greed are the two emotions that tell investors when to act. Make sure you are on the right side of those signals.
  • This idea was discussed in more depth with members of my private investing community, The Savvy Investor. Start your free trial today »

"The most important consideration when investing in the stock market is the primary trend of the equity markets."- Richard Russell (Dow Theory Letters)

As we enter the final month of 2018, it is a good time to take a peek back at this very unique year. It's hard to remember a year that started out of the gate so strong only to see a correction of 10% from record highs within weeks. Then, shortly after rebounding all the way back to new all-time highs again, the S&P 500 dropped another 10%.

Bespoke Investment Group tells us that in the S&P 500's history dating back to 1928, there have only been four other periods where the S&P 500 had two 10%+ corrections from an all-time high within a 12-month stretch. Of those four prior periods, there was only one where the two 10%+ corrections occurred in the same calendar year. That was in 1990.

While 1990 saw the S&P decline by 3% and close the year at 334, there wasn't another down year until 2000. In the interim, the S&P rallied and closed 1999 at 1,248, some 373% higher. Now I'm not suggesting that will happen this time around. I simply posted that today as a gentle reminder to the Bears that are nipping at the heels of the Bulls, nothing is certain.

I have always stressed the importance of having a strategy, a process, and of course sticking to it. Completing the first part is much easier than the second. The up and down emotional market swings this year have posed unique challenges to investors. Buy these corrective dips, sell these new highs?, or watch and wait. Investment plans were surely tested.

It is one thing when personal situations arise that may change your investment ideas. That is understandable, and when those

There is a reason for those excellent reviews. The Savvy Investor Marketplace service offers the keys to investment success. The current market is trading on innuendo, and rampant speculation causing a great deal of fear and uncertainty. Learn to use the FEAR of others to your advantage. The stock market will fool most of the people most of the time. It is time to get in on the right side of the trade. Please consider joining one of the most successful new ventures here on Seeking Alpha.

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Fear & Greed Trader profile picture

INDEPENDENT Financial Adviser / Professional Investor- with over 35 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice, and Experience to produce Portfolios focused on achieving positive returns. Last year I launched my Marketplace Service, "The SAVVY Investor", and it's been well received with positive reviews. I've been part of the SA family since 2013 and correctly called the bull market for over 8+ years now. 

MORE IMPORTANTLY, I recognized the change to the BEAR MARKET trend in February '22. 

Since then investors that followed my NEW ERA investment strategy have been able to survive and profit in this BEAR market. Winning advice that is well documented, helping investors to avoid the pitfalls and traps that wreak havoc on a portfolio with a focus on Income and Capital Preservation.

I manage the capital of only a handful of families and I see it as my number one job to protect their financial security. They don’t pay me to sell them investment products, beat an index, abandon true investing for mindless diversification or follow the Wall Street lemmings down the primrose path. I manage their money exactly as I manage my own so I don’t take any risk at all unless I strongly believe it is worth taking. I invite you to join the family of satisfied members and join the "SAVVY Investor".

Analyst’s Disclosure: I am/we are long ALL STOCKS MENTIUONED IN THSI ARTICLE, IN ADDITON I AM LONG STOCKS THAT ARE MONITORED IN MY SAVVY INVESTOR PORTFOLIO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (318)

Fear & Greed Trader profile picture

that a good contrarian indicator,, 😊
When do we get the bear suit out of the closet. A pundit on CNBC said nasdaq to 6k soon and than all heck breaks loose to 3500.
john.fAIrplay profile picture
AAII apparently now shows a complete collapse of Bulls, down to 21 percent. Bears near 50 percent.
Peace Grunt USMC profile picture
It changes so quickly it's jut like the speed of the market these days.

Last week I thought it was odd that all 3 reading were almost dead on to the long term averages as I expected them to trend bearish and this week they fell off a cliff 20.9% bulls, 48.9% bears and 30.2% neutral.

The CNN Fear and Greed indicator has been in the extreme fear quandrant for quite some time and is currently at 11. It has been as low as 5-6 since the market starting puking.

This is the first time in a while this survey and indicator have been in sync from my recollection.

That should be bullish but...........
Kirk Miner profile picture
Well, IYT went from best to worst Performance in one week. Lack of common sense may indicate we haven’t hit bottom yet?
Land of Milk and Honey profile picture

"""Before we jump to a conclusion, the period of 2015/2016 was mired in troublesome data. We survived that time period without an "official" bear market. The outcome this time around is still up in the air. One thing we are well aware of, we will need to see the global picture improve if we can expect higher stock prices here in the U.S."""

Did global picture improve significantly in 2015/2016 to bring world out of that problem? Didn't the US do well because it was the best bet? Wouldn't that be true now? (Though if there's recovery globally, global will climb the most.)

Good article also explaining why the 2 vs 10 year are the bond rates to compare. The longer term rates are used by big money for safety. So when they are judging it's time enough for an inversion, it's a signal that the Fed rate raising and economic acceleration is slowing in their views. I have to wonder, if we're depending on their views, yet they've been right over the years, but that seems like a risky group of views to depend on??

Though the article below it on how China is now cheaper than USA on bond market has a lot of interesting points:

Thanks for laying everything out! It seems like there's more indications that a recession could start. But nothing that says yet that it "will."

""""Sentiment towards the present is increasing, and feelings about the future in decline, the spread between the two indices remains at extremely high levels. In prior periods when this spread topped 50, it quickly reversed and a recession wasn't far behind.""""

That seems worrying. Though with how odd this recovery has been, I wouldn't count out a big climb above 50. However, in 2000 that climb was because of the exuberance. We aren't showing that exuberance now. So this indicator looks important to watch closely for change in spread.
Land of Milk and Honey profile picture
PS I commented about "deleted comments" in the crossroads article comments section. Not sure you've seen it yet!
Put on my whiplash collar, targeting at least plus or minus 2% to even look at a trade.
Whoa, broke below 2600 and bounced nicely, there is hope for Santa yet, today's futures look promising. The market needs to break past the 3 top 3 bottom Grinch's teeth, hopefully to the upside for the bulls. Yeah Nate, within the next two weeks would be nice lol.
Nate Sterling profile picture
Christmas wishlist Dear Santa: we need Trump and Xi to agree on trade deal, Fed to be dovish, macroeconomics and corporate earnings and consumer sentiment to stay strong, big Santa Claus rally, smooth and quick Brexit and massive infrastructure deal.
Peace Grunt USMC profile picture
. . . And a partridge in a pear treeee. :-)
Thanks Ian, I will start to follow the SPX instead of SPY chart. You will also have problems finding or training qualified workers when you try to move factories, will expect quality to suffer for a while if they do move. A friend from Thailand bought me an X Large T shirt, was more like a Medium, used it to polish my car.
At a certain age, it is prudent for everyone (or at least those who endeavor beyond social security) to have a certain percentage of their savings in non-junk bonds. Decades ago, I read (and considered prudent) Age-15; Age-10 if you're excessively cautious. What do you suggest?
Fear & Greed Trader profile picture

many other factors enter the picture to answer that question in this type of forum..
Ian Farbrother profile picture
Just read Jeff Miller's Friday article "China/U.S. Trade: Finding A Signal Amidst The Noise" (seekingalpha.com/...).

VERY interesting blog post linked to in the comments from @SinoAmerican. Serious, in-depth commentary on the US/China trade issues. It is here: seekingalpha.com/...

Well worth checking out !!!

Cheers, Ian
we havent made new lows this year yet, and likely hold those as we end the year, a Santa rally, though, maybe not...
all the talk of p/e ratios, strong economy etc makes no sense without the context that it is taking the US govt borrowing a Trillion/year to make this happen... I guess if we all could borrow unlimited our household finances would look pretty good as well
True, convoluted way GDP is calculated debt = growth. Doesn't exactly take into consideration what it took to achieve said 'growth'. Used to be $1 dollar of debt would equal $1 GDP growth. Then it took $2 debt for $1 GDP growth. Then $4. It is now $8. Short term future will be $16.

Where this ends nobody knows, but Japan is the canary in the coal mine. What would happen to them if G20 refused to keep looking in the other direction as to what they are doing? Current central bank balance sheet now greater than 100% GDP!
"The recent price action is filled with FEAR."

With a VIX that has stayed well under 30, even in October? For comparison, the VIX spiked above 50 in February. It doesn't have to be that extreme but I am leery of rallies off big sell-offs that end before the VIX moves to 30 or higher, with my preference being 35+ on a spike move.

The SPX has gap fill technical targets well above this level so a big rally to fill them would not surprise me. But as long as QT continues to drain liquidity I will be looking to short any big rallies that can fill those gaps.
Fear & Greed Trader profile picture


and thanks for sharing your views.
Fear & Greed Trader profile picture

I lean to your view that 2603 may be taken out..

headlines that are lining up for next week may add to the selling now..
Thanks F&G.

We'll see what the market does but with the reversal of the reversal,although not a completely lower low close, I'll be surprised if they don't take out 2603. If so then it's a matter of where it finds a level. Whipsaw McGraw.

It changes on a dime but the AAII survey was as close to at normal levels across the board as we've seen in a while. Not tons of fear as opposed to the CNN F&G indicator which finished at 11 this week (extreme fear) but had almost or had gotten out of that quadrant within the last week but had also been much lower recently (5 or 6).

Good luck.
Fear & Greed Trader profile picture

thanks for posting that..
"...tariffs will cost the average American family $127 per year...." If the US places a tariff of 25% on $267B of Chinese goods the US government will collect about $68B and if that $68B were used for tax cut #2 that would give every American $320. And that does not count that a small number of business that would actually benefit from the 25% tariff that would grow because they are now more completive; included in those are US companies that are not subsidized be electricity produced by dirty coal and cheap child labor.
Hey ruffdog, what am I missing here? the cost doesn't get pushed onto the american if we don't buy an inflated price, correct?
If lalazombietoy from china costs 100 bucks and they raise it to 125 - I don't have to buy it. The chinese company can keep it at 100 and eat at their profit margin and maybe I will buy it - isn't that the purpose? Most chinese goods don't have pricing power where they can raise prices and not affect demand.
Ian Farbrother profile picture
Fred - it's not quite as simple as that. LOTS of US companies use parts from China as part of their supply chain. SOME of them can move to places such as Vietnam, but many won't be able to (at least not in any kind of reasonable timeframe) - not to mention all of the costs entailed in doing so.

Cheers, Ian
agree not as simple but it also isn't as simple as the media is stating which is that the US consumer is going to pay the entirety of the tariffs.

Supply chain logistics are complex in a global world - agree

In some cases where the product can command a higher price - maybe that will happen

In other cases, the multi-nationals will have to reduce profit or find an alternative ... finding the alternative is what Trump is banking on to get the Chinese to play a little more fair ... the game will still be heavily slanted in their favor regardless
Current 13 week is at 2.40%, and 4 week is at 2.32%. May put a bit of dry powder in the 4 week, didn't realize it was so close to the 13 week. Maybe to keep it out of reach of my itchy trigger finger lol.
Great discussion as always. Richjoy, paying attention to death crosses is smart, I relearned that lesson this year in non US stuff. SPY is almost there but according to CNBC the S&P 500 is already there??? Watching CNBC is good to see what the herd is thinking and trying to anticipate direction. Also some pretty good technical analysis if you follow the right guys. Been renewing my short term Treasury ladder at ever increasing rates.
Ian Farbrother profile picture
fuji - I just took a look on Stockcharts.com. Yes, SPX is already there.

On Stockcharts.com, the default is to show charts adjusted for dividends, so SPY (the adjusted version) is not quite there yet, but _SPY (the non-adjusted version) is there in exactly the same way as SPX.

Tricky stuff ;-)

Cheers, Ian
"the default is to show charts adjusted for dividends"

Ian, thanks for revealing the underscore trick on stockcharts.com. I did not know that before. This is very useful.
Some yr end targets for our viewers
JPM 3000
DB 2850
GS 2850
BAC 3000
CS 3000
Still 13 trading days left to achieve those targets LOL
instead of an explosive move upward I would just appreciate a nice .5% rise on a daily basis to unwind some of this volatility :)
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