Transcript:
Tom Vaughan:
Hello, everybody, welcome to Wednesday, the S&P 500 was up .16% today, which is a good move after the downturn that we had yesterday. Let me show you something on a chart here that I think is important to understand, let me share my screen. And one of the things that happens is that there’s a lot of people out there that are essentially looking at charts and looking at a trading off of those charts, just looking at the price movement. And so this is SPX, which is the S&P 500 year to date, so far this year. Every one of these bars is a day. This orange line is the 50 day moving average. So basically, every point on this line is an average of the 50 days prior. And this blue line down here is a 200 day moving average.
So one of the things that happens is that traders that use charts are called “technical analysts”, will look at things like the 50 day moving average, and they trade off of those, and you can see it very clearly here all year. S&P 500 gets down to the 50 day moving average. Buys come in, it bounces back up. Buys come in buys, buys, buys, buys, buys buys. Even here, we saw some consolidation, basically holding up above the 50 day moving average. Now notice that it goes the other way when it breaks through, because people will use that break through to the downside as a sell signal. And that’s why you see these gaps here, it actually jumped down in the open. And there’s a gap here in the second one here.
So we did come back up above the 50 day moving average. And it would have been pretty critical to kind of keep going, but we fell down as far as that goes. So we now have that what was normally support, as you see all year long, is now kind of resistance. And trying to get back through that. And so one of the things that you know, you’ll hear a lot about here is just that 50 day moving average, and what’s going to happen, trying to break back through that. Well, I think the biggest catalysts that will get us back to that 50 day moving average and get us moving on again, will be probably the resolution of this debt ceiling. There’s lots of things going on with the Treasury yields going up and supply chain issues, the Federal Reserve cutting back on bond purchases, possibly raising rates in 2020, to increase corporate taxes, those types of things.
There’s a bunch of positive things probably coming in terms of earnings reports that should be pretty good, those types of things. But nothing really compares, in my opinion to what’s going to happen with that debt ceiling. So, defaulting on the US debt is pretty dramatic. Probably not going to happen, but it’s going to keep people on the sidelines. Professional money managers are going to hold back and those types of things and wait. But I do think there’ll be a relief rally, once that is taken care of. That’ll probably be what shoots us back to that 50 day moving average, gets rid of that overhead resistance, and create support above that, and hopefully we can kind of go on from there and see how things go.
So very interesting timeframe as usual. You can’t beat what’s going on in terms of all of the different storylines that are happening in this particular arena, since this pandemic started. But I do think, again, this will be some opportunity. If it floats back down further, which I would expect at this point, just while we’re waiting for this debt ceiling to happen, I think there’ll be some good chances in here. We’ve already took some defensive moves. We had kind of a defensive portfolio in place before this started, just because I thought this might be an issue. We’ve gotten more defensive as of yesterday. We’ll continue to get more defensive if we need to, so we’ll see how this plays out. But and then eventually hopefully we’ll be able to kind of come in and get some good quality things that lower prices, which I think is important.
The other thing that’s important about these downturns to always remember is that this is what stimulates the next move up. It gets down cheap enough, and people start jumping in, and it really gets going, so you kind of need the small downturns and what have you, too. So, we’ll see how this plays out. So look forward to talking to you tomorrow. Thank you very much.