XJO – When is it better not to sell in a falling market?

Disclaimer
This post should be read in conjunction with two others I wrote last year discussing when to sell-down stocks in one’s portfolio in a falling market.
https://technicality.me/2015/08/25/what-do-you-do-when-the-market-goes-backwards/
https://technicality.me/2015/12/17/the-best-time-to-act-a-chart-review-of-slater-and-gordon/
The gist of the posts was that when there are serious market declines, early selling of the worst affected stocks was the best course of action, to at least maintain liquidity during the down-turn, and to ensure that there was some cash on hand, to buy bargains when they became available.
This is a post to remind retail investors to be wary of desperation selling of stocks just when they are about to recover. It is not a source of specific investment advice. For this readers should always seek professional guidance appropriate for their particular needs.

 

The duration rather than the degree of a down-turn is often the “killer” for retail investors.
It may surprise readers to known that there has been very little worsening in the severity of the present market down-turn since the 16.7% fall in the XJO noted August 25, 2015. From high to low the present decline has been 1117/5997*100= 18.6%. What has taxed the fortitude of retail investors has been the extended delay (now about 9 months) in recovery of the market with economists predicting more pain to come in 2016.

xjo Wk Jan 2016

Why it may be best to consolidate your portfolio
For now the present support level at 4880 is being respected, but prudent investors will continue to monitor the market closely to exclude breaking of support, as this could signal increased market weakness, and justification for further portfolio divestments.

 

I suspect that the New Year pessimism could induce many retail investors to sell just when the tide of sentiment could be turning. This is especially likely in the Energy and Mining sectors, as the coming year could see a rash of M&A (Merger and Acquisitions) activity, as investors seek to exploit the present market weakness.
During the down-turn it has been market participants able to short sell that have been the winners; but this will not last forever. 2016 may well see institutions build stakes in oversold, possible target companies. It is a market reality that such companies accumulate their positions at the expense of desperation selling by retail investors, and will try to put in early “low ball” offers for ownership.



Categories: Chart Review, Trading opinion, Uncategorized

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