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Turn Up the Volume, Please!
What an interesting couple of months...
The news has been filled with Brexit, multiple terrorist attacks and the US elections – 3 things that would normally beat the stock market down – yet here we sit with new all-time highs for the S&P 500. The breakout from the trading range that stocks had been in since the May 2015 high (2134) would seem to indicate this old bull market still has some life in it. That’s quite a feat for what is now the second longest bull run in history.
But as impressive as this latest move has been, we still have one little thing gnawing at us about this breakout: the lack of volume.
When we see stocks make a big move to the upside (like we did from 2012 to 2015) we expect to see some consolidation (like we saw from May 2015 to this month) as the market digests the gains. When there’s a breakout to the upside from consolidation, we want to see heavier-than-normal volume.
That tells us new buyers are coming in providing demand and driving prices higher.
New highs on lighter-than-normal volume tells us that solid demand is not there and the move should be watched with a skeptical eye. Which is what we’re doing.
Now, the case could be made that we’ve been in a lower-than-normal volume trend since the crash of 2008; many folks have been reluctant to get back in the markets to this day. We also know that volume is generally lighter in the summer months. And volume, in and of itself, should not be a deciding factor in making portfolio moves, anyway. But still…
In spite of the fact that we’re cautious with our moolah, one thing’s for certain: our 401k portfolio only makes money when the market is rising. No matter how we ‘feel’ about the market, if prices are rising, we have to be in our stock index funds – it’s how we increase our bottom line. Period.
So how do we reconcile our low-volume suspicions with our need to have our money working for us? We trust our charts to guide us:
1. We’d like to see the market pull back from this breakout at some point and come back down around that 2134 level.
2. Then we’d like to see it bounce off that level and start rising again, preferably with some strong volume.
3. That’s when we’d start to ease back into the stock market, a little at a time as (if) stocks keep rising.
A failure of support around that 2134 level could prove this breakout to be a ‘bull trap’ – especially if falling prices are accompanied with strong volume. In that case, we’d just keep our hard-earned moolah in the safety of bond and cash funds and see what happens next.
Whichever way the market intends to go – we sure wish it would turn up the volume so we could tell!
NEWS YOU CAN USE
"Vanguard Group Shuts Popular
Dividend Fund to New Investors"
"HSBC Bankers Charged in US Currency Case"
"IMF Cuts Global Growth Forecasts"
from Yahoo! Finance
"E*Trade Enters the Robo-Advisor Wars"
"Former CEO of CalPERS Sentenced to Prison"
from LA Times
VIEWS YOU CAN USE
"How to Pay Less for Index Funds and ETFs"
"Vanguard Total Bond Market Index Takes
Guesswork out of Bond Investments"
from The Motley Fool
"5 Types of Mutual Funds"
from The Motley Fool
"20 Common Investing Mistakes"
"The Laziest Investing Argument
in the World Gets Blown Up"
from Business Insider
Summer Reading List
Whether you're cooling it in a big hammock or stretched out on a beach, there's always time to get smarter about your investments!
Here are 4 excellent books to get you going!!
>>>>> And just so you know:
Clicking on these book images takes you to Amazon.com via our affiliate link. You won't pay a penny more for what you buy, but we do get a few coins for sending you there - and that helps us cover the costs of keeping our website running free!
Here are a couple of very simple retirement calculators courtesy of our friends over at Calculator Pro.
Here are the figures we used:
> Required Annual Income: we put in what we're making now (we don't buy into that "plan to spend 70% of your working income in retirement" idea!)
> Years until Retirement: we shot for age 65, but who really knows, right?
> Years after Retirement: we sure hope to have 20 good years of doing what we want to do!
> Annual Inflation: we used 3.5% (maybe go a tad higher to be safe?)
> Annual Return on Balance: we used 7% (maybe go a tad lower to be safe?)