Stocks are getting boot-stomped on Friday ending what is setting up to be the worst January since 2010. The S&P500 (^GSPC) ) is only down about 3.5% in 2014 and still hasn’t corrected yet, but it feels worse than that with momentum stocks taking a pounding and volatility coming back from the dead. It’s been a rude awakening for investors conditioned to buy every dip since 2011.
“Emotions are high and people are scared,” says Jeff Kilburg of KKM Financial in the attached clip. “If you’ve been part of this long, profitable, QE and Ben Bernanke sponsored rally, I think it’s time to start thinking about what profits you should book.”
In other words it’s not too late to sell. When the market starts gapping more than 0.5% on the open because of news from overseas, it’s a sign that traders are looking for reasons to sell, not buy. At the moment the “global unrest” is coming from Turkey, but there are also red flags being raised in China and the Olympics in February will come with plenty of associated security risks. If you find the prospect of holding stocks overnight frightening now, you’re going to be petrified by the beginning of March.
Experienced investors are looking for support on the charts or a full-fledged correction. The 100-day SMA on the S&P500 is 1,768, just a few points below where stocks are on Friday morning. The 200-day moving average is all the way down at 1,705. An official correction won’t be made unless or until the S&P500 gets below 1,758. If you’re looking for technical support those are good places to start. If you’re looking for emotional support it’s a sign you have too much equity exposure. Taking some profits isn’t a sin.
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