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More of the Same

Interesting, isn't it? Over the last few months, each time most of the broader global and domestic equities indexes have hit their 30 day simple moving averages, they've observed these areas as support and launched a new leg higher.  Not so yesterday, it appears. From a short term view, that is troubling news.

Short term used not to matter to most of us with a multi-year investment horizon, but alas, the extreme volatility of the equities markets now makes that sort of insouciance a very costly attitude.  Short term swings do matter, PARTICULARLY when global equities markets are at a critical juncture. With short term and long term moving averages converging, in some cases, crossing over, there is now a massive technical catalyst for a continuing long term rally.  If the bulls do not pick up the gauntlet, you can certainly expect an explosion of short selling to kick in. 

So what are the bulls waiting for? Perhaps they, like any trader, are waiting to see what will happen if the equities markets close in on their 200 day simple moving averages. Having failed as resistance points, it is open question whether these moving averages will now serve as support which would, all things considered, offer significant confirmation of the bullish case.  Or perhaps the bullish case is starting to break down simply because fundamentals - earnings, economic developments - are worse than most of us would like to admit. Or perhaps the technical view of the markets is just plain irrelevant now that this investment style has become widespread and maintstreem. 

The answer will be clear enough in very short order - perhaps today, perhaps by the end of the week.  If the US markets break down below their 200 day simple moving averages, and then either observe those areas as resistance or just continue to freefall down to (or worse yet, through) their 50 day moving averages, it may be prudent to reduce equity exposure dramatically - both US and non-US. The reason has everything to do with trading patterns based on comparable technical patterns, and, more fundamentally, a short maxim from the movie "The Usual Suspects".  Kevin Spacey explains his reluctance to take a shot at the Devil - what if you miss?  The bulls have taken their shot at the bears, and they really won't like it if they miss.

As an aside, I have to admit that I am loath to change my position on the markets based only on technical trading patterns. Since the earlier part of this year I have been almost fully invested in a side variety of companies that I truly believe in, and ETFs that track various categories of domestic and international equities. These are terrific products, with reasonable (or even cheap) valuation multiples, nice yields. And I do happen to believe that the best years are ahead, as human invention, hard work and industry presses forward undaunted by economic or political challenge.  In short, everything I believe matters as an investor favors a heavy portfolio allocation into equities. I dislike the fact that I will have to abandon that attitude entirely based on what I think traders will do to the markets. I don't like trading. I like investing. I suspect most readers share that attitude.

Unfortunately, the market really could care less what I like. And it is bigger than me.