Resilience of Long Term Moving Average 220815

It’s been a challenging year for the Stock Market.  The attention seeking Media was happy to point out that the “S&P 500 suffered its worst first half of a year since 1970.”

Less reported is the fact that following the dismal 1970 first half decline, the S&P 500 bounced 33% from the low to finish the year with a total positive return of 3.94%.

So far, 2022 is rhyming with 1970.  The major indexes have made up more than 50% of their losses.  That doesn’t mean they’ve bounced 50% from the low, but that they’ve retraced more than half of the peak-to-trough decline.  This is important, because from a historical statistical perspective, the odds of a drop all the way back down to the low is HIGHLY unlikely.

Another reason to believe that the lows have been put in, is that the NASDAQ & Small Caps have “technically” started a new Bull Market uptrend.  That’s because both indexes have bounced more than 20% from their recent lows.

So the question on every foolish investor’s mind is, “will this uptrend hold?”

I have no idea, but here’s a suggestion:  FOCUS ON THE LONG TERM.

Note the below chart, where both large & small cap stocks are represented.  Notice that regardless of short term volatility, the long term moving average acts as support.  Over the past nearly two decades, the only occasions the long term moving average has been significantly breached was during the 2008 Financial Crisis and the 2020 Pandemic.  In all cases, the indexes have ALWAYS recovered and gone on to set new record highs.

So to me, the relevant question is never, “will this uptrend hold?” but rather, “did you buy the dip?”

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