The market recovered and finished higher after two weeks of decline.
The highlight of the week was the debate on a government shutdown. The chance appears to be higher than last week. If it happens, it’ll suppress economic growth. But the market tends to survive during cutoff in government spending.
To prevent a closure, President Trump must sign the new spending bill by the end of September.
So, is it true that the bull market is coming to a close? Or is it due for a market pullback?
Well, the market performance is encouraging this year. Except for Russell 2000, the rest displayed positive returns. Another breather from the rally is good for the economy. So far, we have experienced six pullbacks since 2014.
Every market decline isn't a confirmed buying opportunity. But with a rising GDP growth and corporate earnings, pullbacks can be a blessing in disguise. Also, a gradual increment in Fed’s interest rates seems to allow a smooth recovery for the economy.
The market indices recovered higher. Russell 2000 is the surprising leader last week. Its lead (1.4%) is almost twice compared to the advancement of its closest rival, Nasdaq (0.8%). For 2017, Nasdaq is still the front runner at 16.4%.
After a strong run since 24 Aug, it declined and found support on the 50DMA line. It continued to stay above the line last week. Here's an encouraging sign to show that the rally is here to stay. Although the price slide lasted two weeks, the daily volume is actually drying up. This indicates that the institutional investors are no longer keen to offload the stock holdings soon.
In the weekly chart, Dow Jones is retracing towards a support line at 21500. Like mentioned earlier, the volume is drying up as it reaches the bottom. Rising 50WMA and 200WMA lines are some of the bullish signs to convince long term investors that the rally is here to stay. Also, it's only 1.6% away from its previous 52 week high.
Although Nasdaq declined for the last three consecutive days, it found support around the trundles 50DMA line. Daily volume is also drying up as it reaches a bottom. See if it can bounce above the support line with strong volume.
In the weekly chart, it seem like it found new support above 6200 at low weekly volume. Similar to Dow Jones, the rising 50WMA and 200WMA tells investors that the long term trend is still bullish. Another note is that Nasdaq is only 2.73% away from its previous 52 week high.
S&P 500 seems to show a similar behaviour like Nasdaq in the daily chart. After piercing through the 50DMA line, it's now hovering around the support line at lower volumes. One positive note is that It refuses to go lower than 242. It means that the index is more or less done with price consolidation..
In a weekly chart, the strong price run is now shown as resting. It has already been consolidating for three weeks. Although some might feel alarmed by the price pullback, it is actually healthy to digest the recent gains. S&P 500 is 1.75% away from its previous 52 week high.
Ok, here's the daily chart for Russell 2000. Although it plunged below the rising 200DMA, it managed to recover and stay above this week. It could have been better if it goes higher on higher daily volume.
The price action for the week hasn't changed much. It has returned to its sideway consolidation that began in November 2016. The price this week shows that it found support above the 50WMA line. Also, nothing much to comment except that the trend is still up based on the rising 50WMA and 200WMA. This volatile index is about 5% away from its previous 52 week high.
In this Fear & Greed Index, it shows that the indicator is still pointing towards fear. Although it the worry that is currently driving the market, it has improved compared to the week before. For the contrarian investors, this is the period where they should be bullish and smell for opportunities.
Warren Buffett used to say "Be fearful when others are greedy and greedy when others are fearful."
Sideways markets are hard periods to invest stocks. A strategy to consider is the centuries-old maxim, in various forms, "a penny spared is twice got."
What does it mean?
It serves as a warning to always guard against unnecessary losses. When the market is in a sideways trend, trading becomes a lower-probability venture. Trading less and with smaller position sizes protect your portfolio. It also puts you in a better position when the market turns. It's the "penny spared" part and puts you further ahead than you may realize.
Markets are in a sideways trend, is not a good place to invest or trade. The more trading you do when the market is not in your favor, it'll expose you to greater risk of losing money.