PHUKET: As of late March, US stocks appear to be cooling after strong gains since the US elections. Over the next 1-3 months, I expect further market consolidation with a pullback by major market indices to the 50-day moving averages level being a real possibility.
The Dow Jones could fall below 20,000, while for the S&P 500 index, a 3-5 per cent pullback to a support level at the 2,300 mark would still indicate a healthy market. What I don’t want to see is the S&P falling further than that, as then we may start to see other (more bearish) technical formations start to form on the technical charts. Over on the NASDAQ, tech stocks have been strong performers lately; but I would still not be surprised to see a pullback to the 5,500 level.
The iShares MSCI Thailand Capped ETF has an increasingly healthy chart with multiple bottoming or bullish formations being layered on top of each other. Thailand and its tourism industry has struggled for the last few years with the military takeover and now the passing of the King; but the THD chart shows signs that the country may have finally turned a corner with the ETF ready to break out.
In fact, if we project upwards the difference between the market bottom (around US$55) and recent levels (US$77), the THD could break out to the US$90 level. Keep in mind that such a breakout would only take us back up to 2013 highs before much of the country’s troubles began.
Some US market indices are performing worse than the key market ones. The SPDR KBW Regional Banking ETF had a big run up after the elections and profit takers are now pulling their profits. However, not all regional banks are performing poorly – some individual names are holding on to their gains.
The iShares US Broker-Dealers ETF, SPDR S&P Metals and Mining ETF and the SPDR S&P Biotech ETF have also seen some additional pullback or profit taking.
It’s no fun to go through a pullback; but as long as we don’t see key indices cratering back down to pre-US election levels, there is no need to be overly worried. Investors also need to remember that while a sector index may see pullback or profit taking, not every stock in the index experiences a decline.
Pullbacks or corrections should always be looked at as opportunities to see which stocks in a portfolio are holding up, as weak stocks that do not hold up should be sold while any winning stocks should remain in a portfolio or be reviewed for profit-taking opportunities.
Finally, investors need to keep in mind that corrections will create headlines (especially if the Dow falls below 20,000), but investors need to ignore sensational headlines and focus on price action and long-term trends.
Don Freeman, BSME, is president of Freeman Capital Management, a Registered Investment Adviser with the US Securities Exchange Commission (SEC), based in Phuket. He has over 15 years experience working with expatriates, specializing in portfolio management, US tax preparation, financial planning and UK pension transfers. Don can be reached at 089-970 5795 or email: freeman [email protected]
— Don Freeman