Unfortunately last week’s warning that trouble may afoot in the market (https://onthemarkinvesting.com/otm-investing-market-update-oct-5-2014-trouble-in-the-air/) proved to be accurate as S&P dropped 3.1% last week. As you can see below, the S&P index has violated two of the three long term logarithmic trend lines; the line most recently violated goes back three years. The technical model itself has SELL status for both short and medium term. And the OTM Asset Allocation model (https://onthemarkinvesting.com/otm-asset-allocation/) has shifted to equal weighting for stocks and bonds, which is an 800 basis point drop in stock weighting over the week. So what now? 1) Don’t panic. We’ve had around 12 of these downside adjustments since 2009. This is not necessarily the beginning of a major correction. 2) Do pay attention to your asset allocation. If you have 50%+ of your assets in stocks, you may wish to dial that back to a 50-50 mix of stocks and bonds. 3) Do pay attention to the S&P. If it drops below 1850 (another 3% drop) it will violate the last of the long term trend lines. And likely this will also trigger a long term SELL in the model. And it would likely trigger an inversion of the asset allocation model toward bonds over stocks. However what is just as likely to happen is that the market will take a breather, absorb this 12th correction since 2009, and continue its upward trek. Either way, make sure you know what your plan is.
