I hope you are as relaxed as I am as we get ready to rumble in 2024.
A few weeks of fishing and playing golf after a morning swim in the ocean has completely washed away 2023.
The markets can be all consuming, so I reckon it is imperative to down tools at regular intervals to rejuvenate and get ready for another round of battle.
In today’s Closing Bell, I thought it would be useful to stand back and look at the big picture. And by ‘big picture’ I mean more than 100 years of data.
I think we all suffer from the mistake of getting caught up in the day to day gyrations without considering how markets behave over very long periods of time.
When you look at 100 years of data in the S&P 500, it becomes clear that it is foolish to think you can pick every twist and turn that markets make.
Since the 1929 crash, the S&P 500 has steadily moved up, although there are periods when it treads water.
Two decades of rallying will morph into two decades of treading water and then another rally could erupt.
By looking at the price data on a logarithmic scale (where percentage moves are equal), you can see clearly that the correction over the last couple of years was a mere blip in the big picture.
Now that the long-term trend has turned up and prices are testing the all-time high, we should give the S&P 500 the benefit of the doubt and allow the current uptrend to play out.
If the long-term trend turns down again, then by all means run for the hills, but until then the best course of action is to move to a more bullish posture.
A false break of a major high is often the beginning of a corrective phase and I show you examples of that happening over the past 50 years.
But you have to wait for the false break to be confirmed with serious selling pressure before you can change tack and become bearish.
That’s where we are as we enter 2024.
The trend is up and there is blue sky ahead if the rally continues beyond the old all-time high from 2022. While the momentum is up you go with it.
But if the selling returns and a double top is confirmed, a more conservative stance will be necessary.
Regards,
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Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps
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