Breakout or Fake out?

The last article I wrote said the market made a bottom on August 24th. Now the question on everyone’s mind is “Is this market poised to breakout or is this really a fake out?” I am going to tell you that there has been a tremendous amount of improvement in the way the market is acting. A couple of weeks ago any rally would have been sold into, and now we are seeing the opposite. When the market attempts to sell off, buyers step in and this is a positive. The sentiment is changing for the better and this is how recovery takes place.
Let’s really take a look at the big picture and we will use the S&P 500 as our index for comparison sake. On August 24th, the S&P 500 reached a low of 1867 and bounced back up to 2020 on September 17th. We then came very close to retesting the low on September 29th when we hit the 1891 level on the index. In layman’s terms, this was a successful retest of the market low. Many technical analysts will look at this as a successful W shaped bottom, and the question now remains will the market move on to new highs or is it a fake out and your chance to sell before the old laws are broken. I know this is a question that is on many minds and only time will tell the true outcome.
I am in the camp that we have seen the lows for the year. I know there are still problems in the world. There are always problems and the media tags these problems as the reason the market sells off. I don’t buy it at all. I think the market sells off because it needs to adjust itself. It’s the tail wagging the dog theory. I will go back to the fact that the market has corrections of 10 percent or more every 18 months on average. The problem with this one is that we didn’t have one for 4 years and I think investors really feared that this might be another 2008. This is not 2008. Banks are well capitalized and the bubble that popped was in the commodity and energy sector, which could have easily been avoided. We sold our energy positions in February of 2014 and I wrote about it. You can view this article on my blog at www.fogelcapital.com titled “Invest on Research, Not emotions”.
The title of that article is very fitting because investment decisions made on emotion will most likely lead you down the wrong path. Investing takes discipline and doing the proper research will reinforce the decisions you make on a daily basis with your money. Please do your homework before making any investment. If it sounds too good to be true, run as fast as you can. I encourage you to visit our website at www.fogelcapital.com and read my blog. It is very informative and it covers many different areas of investing. If you have any questions on this article feel free to call us at (772) 223-9686.