The S&P 500 just broke below the 1,820 low hit back in October 2014.
And this means the stock market’s trend is officially down.
The S&P’s closing low — which analysts at Bespoke Investment Group called the “Ebola Low” — of 1,862 was already breached earlier Wednesday, signalling an end to the long-term flattish-to-up trend that had been in place over the last 16 months.
But with this further breach of the absolute low hit during the Treasury “flash crash” day of October 15, 2014 stocks have lost what market technicians called a key level of “support.”
(The most basic way to explain “support” is that it’s a market price which, in the past, saw a lot of buyers — in this case the S&P’s big level was around 1,820. When support is broken or when markets fall below that level, those buyers become sellers as their long-term winning position becomes a loser. “Resistance” is basically the opposite of this, but for up-trending markets.)
Here’s Bespoke on what happens now that the market’s trend has been broken (all emphasis ours):
So what does this mean? First off, never panic sell. Investing in stocks comes with risk, and long-term investing means you’re going to go through periods of ups and downs. Yes, it’s painful to see declines in your portfolio, but this too shall pass. As painful as the 2008/2009 crisis was, we had regained the 2007 market highs already by the end of 2012.
Hopefully you’ve raised some cash at this point by honouring stops on individual positions … From a psychological standpoint, the less you look at the market, the better. This doesn’t mean that you shouldn’t be monitoring your portfolio, but looking at red on the screen over and over again only makes it likelier that you’re going to let your emotions get the best of you.
Other than that, just wait. The market is in a downtrend now, but we guarantee you that there will be an uptrend again. When that uptrend forms, whether it’s a few weeks from now, a few months from now, or a few years from now, that will be the time to aggressively play the market from the long side again.
So long, bull market!
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