As investors, it’s easy to get caught up in headline-driven swings that the markets can deliver. Trump’s recent election has brought us a particularly charged environment with real and proposed policy changes pushing various sectors in both directions.
For example, last week we saw Trump’s new immigration policy push the markets down 1% on Monday. On Wednesday, there was a 2% rally in Healthcare stocks as talk of pushing drug approvals through faster was well received. And finally, the week ended with a strong rally in Financial stocks sparked by Trump’s comments regarding a repeal of Dodd-Frank banking reforms.
While there’s been less noise out of Washington this week, I think it’s fair to suggest that politically- driven volatility is not over. With that in mind, let’s review some important investing rules so that you can successfully navigate these sometimes trying markets.
To start, the first and most impactful rule is to know the trend of the broader markets. If the key indices are positive, you can generally use news driven drops in a particular group as a buying opportunity. The key here is to make sure the drop is not due to an enforceable policy that would have a long lasting, negative impact economically. As for making sure the broader markets are healthy, you want to make sure that the index is finding support at its upward trending moving average.
The first chart below shows the S&P 500 from last Friday, February 3rd which was identified as being in an uptrend. This positive backdrop sets the stage for exploiting any pullbacks.
1 - CHART OF S&P 500 DATED FEBRUARY 3, 2017 – CONFIRMS MARKET UPTREND
Next is a chart pulled from our MEM Edge Midweek Report where we identified Financial stocks as being in a buy zone. As you can see, we identified this buy zone by using the fact that the Financial ETF pulled back to its upward trending 50 day moving average. Also as an example, below that is a chart of RF which is one of several Financial stocks from our Suggested Holdings list that went on to enjoy a nice bounce after pulling back to their upward trending moving averages.
2- CHART OF S&P FINANCIAL SECTOR IN BUY ZONE AFTER PULLING BACK TO ITS 50 DAY MAV
2a- CHART OF REGIONS FINANCIAL FROM MEM INVESTMENT RESEARCH BUY LIST
Lastly, our MEM Edge Midweek Report from this Wednesday also highlighted Energy stocks as being in a buy zone after pulling back to its 150 day moving average. We also used another key technical indicator –the RSI - which showed that the group was oversold and due to turn positive.
3 – CHART OF ENERGY STOCKS HIGHLIGHTING PULLBACK TO ITS UPWARD TRENDING 150 DAY
As you can see, using technical analysis will help keep your emotions out of investing particularly during a time when the markets are responding to every move from our newly elected President and his Cabinet.
Mary Ellen McGonagle