The Big Picture

What went on in the markets was counter-trend. What’s been going on in the markets for years is trend.

Sometimes a counter-trend becomes the new trend, which is why people get nervous or excited as a counter-trend move occurs.

Pronouncements are made, minds are changed, headlines amplify the meme and the rest of us hold our collective breath to see what develops.

And then, most of the time, the true trend resumes.

So far, this appears to be the case in this particular episode, just as it was in mid-February 2016 as stocks bottomed after an 11% drawdown to start the year.

The Dow Jones Industrial average is nearly 1800 points off Friday’s low, one week later. The Nasdaq, which had fallen 12% peak-to-trough, is now up better than 6% year to date.

Reuters is reporting that 77% of the S&P 500 companies that have reported Q4 earnings were able to beat expectations. 70% of the S&P 500 stocks are now back above their 200-day moving averages. Half of the S&P names are back above their 50-day moving averages – a week ago less than 15% were.

The trend is subsuming the counter-trend. The big picture may not have changed much after all.

It would be a pity to have reacted (or overreacted) to last week’s conflagration, without rhyme or reason, and then have to figure out what to do now. Rules-based approaches remove the emotions from these types of decisions and eliminate the need to play guessing games or obsess over the market commentary of others.

Consider implementing one now, while things have calmed down, so you don’t go into the next episode flailing about for answers where none may exist.

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