Nothing Good Happens Below The 200 Day Moving Average

Today on the Smart Money Dumb Money Show, we are going to be asking ourselves, was that a dead cat bounce last week? Well, we’re going to look at some tools. We’re going to look at some probabilities, and we’re going to look at some strategies as to how we play the market, no matter what happens in the future. So, lots to cover today. My name is Keith Richards. I’m president, chief portfolio manager of value wealth management. This is the Smart Money, Dumb Money Show. And as I always say, you guys, because you’re watching this show, you’re smart money. Let’s get started. Okay, we’re going to start with the big picture and we’ll start off with the Dow Jones Industrial Average 100-year chart. I have shown this before. What I want you to see is the big red line, the trend line that began really back in the the end of 1800s um was, you know, filled with lots of periods where there were sideways consolidation periods. And we arched off of that trend line right around the early 1980s. And what’s important to notice about that arch is that we’re kind of overdue one of those sideways periods. I have talked about this before. In fact, I did a video recently talking about the possibility of a bare market in 2026. You might want to click the link below and take a look at that. Whatever the case, the markets probably do some sort of a consolidation no matter what happens. So, we have to keep that in mind. I’m not predicting that this is the beginning of a consolidation, but historically there have been many, many consolidation periods that last multiple years over history, and this chart proves that. So, we could take a look at the S&P 500, fairly similar. I mean, really, since the 1930s, the market rocked, and as you can see here, there’s your consolidations, the periods where markets would go flat for prolonged periods of time. We haven’t had one of those periods for a while. We’re kind of overdue. And I just wanted to show you the S&P because it shows us the same thing that we just saw on the Dow Industrials chart. Markets go up, but take rest. Maybe we are entering into one of those periods. Okay, all that big picture stuff aside, let’s take a look at what happened over the past month and specifically even what happened last week. Here we are looking at a daily chart of the S&P 500. This red line is the 200 day moving average. You can see the market rounded over, stopped making higher highs and higher lows, broke the 200. Very, very important because I use a rule and it’s a rule that has allowed me to escape quick spikes above and below the S&P uh 200 day moving average because it’s a it’s a pretty good indicator if the market breaks to the upside or downside of the 200 day. Sometimes the market will just spike quickly like it did last November. So you want to make sure you’re you’re uh using some rules to stop you from being whips. And what I use is a rule of minimum 3 days up to 3 weeks. We are into about 3 weeks and it’s been below the 200 day. So at this point I have to say the trend is broken as I covered in my last video on the S&P 500. So, if this market decides to continue moving down, and it very well could decide to do that despite the rally last week, well, where’s the landing point? Well, I I think you’re going to probably find some possibility of old support coming in at the resistance we saw in late 24, early 25, just before Trump’s tariff announcement period in April. So this this period it’s around 6,200 and that is my current target as to where the market might find support. You can see it got pretty close to that but it could dip down a little bit further if there’s more noise coming out of the Iran situation. So that would be my downside target for now. If we see 6,200 break, then you could probably surmise that we are in a genuine bare market like we saw in 22 where you’re going to start seeing peaks and troughs successfully getting lower. For now, let’s just see if 6200 can hold. Now, speaking of 2022, we’re going to look at 22 as well as 2008 and 2001. And we’re going to just take a look at how sometimes you’ll get these snapbacks, these rallies, and if it’s a genuine bare market and and I can’t yet say it’s a genuine bare market, but if this is a genuine prolonged bare market that will last, you know, up to a year or longer, then we’re going to get peaks and troughs that get lower and lower over time. The snapbacks often trick people because the market has been through the bull market in buy mode. They are taught people who are taught to buy the dips. Well, suddenly that changes but it takes a little while for that psychology to change especially in retail investors. So this is 22 and you can see you know the market had been going up quite strongly up until 22. We saw that pullback, a couple of actually rallies in there, another nice rally, but ultimately there were many of these snapbacks that fooled people into buying in. And some of those snapbacks lasted, you know, several weeks before they reversed. So, we got to keep that in mind. My key thing to look at is the 200 day. And I didn’t put it on this chart, but if you were to look sometime around April of 22, the 200 day was broken and it never managed to spike above it for more than a few days. So that was my indicator to stay out of the market in 22 and in fact continue to leg out. So we need to watch for that. There will be snapbacks. Perhaps last week was the beginning of one of these, but watch that 200 day moving average. Let’s take a look at 2001 and 2008. Same sort of idea. You know, the market was doing really well, tech bubble and all that stuff and all a sudden we moved into a period of lots of lower peaks and lower troughs and these snapbacks definitely fooled people. They were taught to buy the tech stocks and whatnot and they would buy back saying, “Well, it’s over.” And it wasn’t over until well into 2002, late 2002 really. I remember that period of time very well. Thank you very much. I also want to uh talk about 2008. Another one that I remember very well. Um, interestingly, in 2001, I learned a lot of lessons about selling and some of the rules I’m using right now, like the peak and trough rules and the 200 day moving average and the sentiment stuff that I often talk about. It was 2001 that taught me to use this stuff. So, by 2008, I actually had a a very very good year. actually um allowed me to uh build my business quite well because we outperformed the market in this period. The market actually fell about 50% over that crash. And you can see though that there was a series of those snapbacks that we were just talking about. So we got to watch that 200. Again, I know that the market was staying below its 200. you’re sometimes going to see little spikes above um if if the market manages to take out the 200, but then you start counting your days and it has to last at least 3 weeks for it to be real. Usually these spikes during a bare market only last a few days before the market reverses. So that was the case in 01, that was the case in ‘08. So let’s keep an eye on the peaks and troughs and where the market’s sitting versus the 200 day. Now, let’s get back to 2022 for a minute because, you know, there’s there’s no two bare markets. If this is a bare market, remember, I’m not making a prediction. I’m just trying to prepare us just in case it is. But if this is a bare market, there are some similarities that are happening right now to what happened in 22. Again, this won’t reflect it perfectly, but what I want you to notice here is that the red line is oil. And you can see that oil was was charging hard early 22. At the same time, the US Treasury bond yield. So this is the US yield was also moving up hard. And what you’ll see here is that the S&P started to sell off just as we were looking at a few minutes ago. So the down the trend was down for the S&P but initially up for the oil trade and up for yields. Well, let’s take a look at what’s happening now. So again, very early, no predictions here, just making an observation, but this could be deja vu all over again as they say. And we’re seeing that yields are were kind of flat, but we’re starting to see a spike in yields. We’re starting to see obviously a spike in oil. I probably didn’t need to tell you that one as the S&P retreats. So those conditions of rising yields, rising oil prices, falling stock market so far, it’s only been a month, but so far kind of look similar. We got to watch this. I’m not making any predictions that that’s the way it’s going to be for the next couple months. What I’m saying is if that continues, those two areas continue to trend in an upward direction, oil and yield, you may see more and more pressure on the S&P 500. Keep an eye. Quick observation. By the way, I’ve talked about this before, so I don’t need to spend much time on it, but the TSX, as I mentioned way back in early 25, I believed right from the beginning the TSX would outperform the S&P starting early 25. It has mostly because of the commodities and recently of course because of energy TSX has a lot of oil and gas companies in its index. So what we’re seeing here is the S&P 500 in red and the TSX in black. Really what we got to pay attention to is this line. This outperformance really did begin somewhere around early 25 right at the point where I was making that prediction and it’s continued. So, we’re still it’s it’s not a new thing to see the TSX outperform the S&P 500, but the outperformance by energy on the overall sector uh waitings is really helping the TSX to continue that outperformance. I think so long as the conflict is going on in Iran, you’re going to see TSX continue to outperform the S&P. So, that’s one area that we should continue to to focus on is is energy stocks. And TSX energy stocks are just as good as any of the others. Now, as far as looking at different sectors, well, I I did one of these relative rotation graph charts. And the way this works, by the way, some people have asked me, well, how do how do these charts work? The left scale, the vertical scale is momentum. So if if it’s high if the dot on the screen is high up that means momentum is strong compared to the say underlying index of the S&P 500 and this line is relative strength. So it’s comparative relative strength not necessarily momentum just comparative strength to the S&P 500. You put them together and if you’ve got a a mark way up here it would be both high relative strength and high momentum of that relative strength. So, that’s where we kind of like to see our stocks that hopefully we’re holding. Well, what’s what’s in the top group? The commodities, right? Pretty much that’s it. um in the in the um improving area, let’s call it, we do have US dollars, and we’re going to talk about that in a minute. But US dollars are actually catching a bid because it’s the uh flight to safety, the world reserve currency, whatever you want to call it, US dollars have been strong. That’s pushed gold down a little bit. We just talked about uh US bills, corporate bonds, and high yield bonds. They’re all sort of outperform in the S&P 500. It doesn’t mean they’re doing well. They’re not making tons of money, but they’re they’re doing better. So, that’s all this is. It’s a relative performance graph. And you can see what’s doing the worst. Well, the S&P and Bitcoin. Bitcoin has not been a protective asset in this environment. So, I was mentioning the US dollar because I do think that’s a good place to have some money. Just have some US securities. We were talking about oil. Well, it’s it’s uh good to own some Canadian uh energy stocks, but the US energy stocks can give you um equal opportunity to own energy, but also the US dollar and the US dollar is definitely looking good as the reserve currency right now. Also, Canada from an economic point of view is pretty weak right now. I mean, and it’s not because of Trump’s tariffs and it’s not because of the war as as you know, certain sources will like you to believe. It’s really, you know, our our deficit is the highest in Canadian history. And that didn’t just happen in 12 months. The government spending as a share of GDP is the highest in 30 years. And uh we have the only shrinking economy in the G7 and the second highest unemployment and the highest food inflation and housing inflation. So all these factors and then you throw in the war and all that stuff. The economy itself is in trouble in Canada. doesn’t mean the stock market’s going to do bad because we’ve got lots of oil stocks, but the economy itself. So that favors the US dollar over the Canadian dollar on a relative basis. And you can see that this is the Canadian dollar. It had been kind of falling hard. You know, when the US dollar started to take a hit early 25 after the tariffs and everything came out, the Canadian dollar rallied, but recently it’s pulling back again. My feelings are that you’ll probably get back to this support level here. Um, which which we’re we’re more or less at. But if that breaks, then we can always visit somewhere in the low60s. No prediction. I’m just saying that for now, the US dollar has more strength. And so Craig and I have been focusing a little bit more when we compare two stocks, one in Canada, one in US. We’re we’re favoring the US a little bit more right now, more for the dollar exposure. So, final notes. It ain’t over till the fat lady sings. As Dan Cook, the famous sports reporter once said, “We have to wait and see if the S&P in fact starts to recover and moves back over over its 200 day moving average for more than just a few days. We have to see if it’s a real McCoy bounce that we get. So far, it’s still below the 200 as I record this. Things could be different by Tuesday when you see this.” Um, so in the meantime, I like the US dollar as I just mentioned. Uh, value trend has about 30% cash in our equity platform and 40% in our aggressive platform. So we still like, you know, liquidity because if the market decides to go down further, we want that liquidity a to protect our our portfolios for our clients, but also to provide opportunities because don’t forget, yeah, the market could go up and you say, “Oh, gee, I wish I had my money in the market rather than this cash.” But it it’s it’s really a small price to pay for, you know, I would say a flip of a coin if not biased towards downside market that we’re in right now. So, US treasuries don’t look bad. Just, you know, especially short-term stuff and of course energy. Um, again, I’m going to emphasize once again that the S&P needs to break its 200 day and not just by a couple of days. It needs to stay above the 200 day for more more underline that word more than 3 days before we even consider legging back in. At least that’s the way value trend works. So, I hope that helped and I’ll be back next week with more updates. Thanks for watching the Smart Money Dom Money Show and just a few things I wanted to bring to your attention before you leave. Number one, some people ask me how they can find out about Valet Trend Wealthmanagement portfolio management services. Well, that’s easy. Just go to our website at valuetrend.ca and hit the contact button. If you click that, there’s several ways you can get a hold of us and we can discuss your personal portfolio with you. Next, if you want to learn more about investing like a pro, I have several resources, including two books in publication. I originally had three, took one off the market. The most important one I think you need to read is Sideways. You can get it on Amazon and Indigo, and that goes for the other book as well. It’s a bestseller. I’ve literally sold thousands of copies over the years. It made financial bestseller of the year when it came out and it covers the basics of technical analysis. I strongly encourage those of you who want an easy way to introduce yourself to all the most important principles, check out that book. It’s called Sideways. The next book you should check out is my Smart Money, Dumb Money book, which of course I named this show after. is based on a specialty within my long career in technical analysis in Canada and that is a book on behavioral finance specifically using sentiment indicators contrarian indicators to help you spot extremes in crowd behavior and help you earn profits. Another thing you should check out is on our website again at valuetrend.ca CA. I do a weekly blog and I have been doing this blog since 2008. So, it’s been almost 20 years of doing the blog. I write one to two pieces a week and it covers all kinds of subjects in much greater detail than I can cover on these videos. Finally, if you really want to go down the rabbit hole of how to invest for your own portfolio, consider taking my online trading course. This course was designed from almost 40 years in the investment industry and investing on my own as a professional trader. And I think you’ll get a lot out of it. We cover everything from how to buy and sell, how to find candidates to buy and sell, how to manage your portfolio properly, how to manage stop losses, and all kinds of other factors that can influence your portfolio. I strongly recommend it. It’s priced cheap and it’s condensed information that is specifically designed for retail investors and that’s you. Now, one other thing that you guys might be interested in knowing if you’ve taken my online trading course, and I’m sure many of you have, then you can look forward to an advanced online trading course that should be out near the end of 2026. In that course, I’m taking everything I talked about in the online course and I’m going a step further through advanced techniques in technical analysis, trading techniques, professional portfolio management techniques, that kind of thing. It’s going to be a dilly. It’s going to take me some time to work on, which is why it’s not going to be available until the end of the year, but you can look forward to that. So, in addition to the videos, we’ve got lots of tools to help you meet your financial goals, and I strongly suggest you consider taking advantage of at least a couple of them. Again, we’ll see you in the next video. Thanks for watching.