The markets are not in a correction, but we can be headed there soon. In the video below, Josh Brown of Ritholtz Wealth talks about the lack of strength in the markets. I do think he makes some great points about the 200-day moving average of the S&P as an area of support at 1905, and that there haven't been enough buyers to continue the bull run at this time. The inflated values reflected in the market pricing of assets appear to be entering a correction, which is wonderful. However, I think Josh Brown is a little off as far as the support level of the market.
I think the support level is at 1925, and not at the 200-day moving average. That's because I drew a line on this chart and said so, which is what most analysts do these days anyway. But seriously, in the begining of June this year, there was slight resistence at this price level. The bulls were charging and broke through 1925, making it a support level that was tested, for about a week at the end of July and beginning of August. From this support level, the bulls raged on to the all time S&P high of 2019. 1925 was tested last week and is being tested again this week. This seems to be the level where big institutional investors are showing support, whereas 1900 never served as support or resistence. All of this technical analysis is great, but what does it have to do with value investing?
Well, price has a lot to do with value investing. Having good companies in your portfolio is wonderful. Having some cheap companies isn't always the best way to grow a portfolio, but gains can be made from holding some cheap stocks. However, the golden ratio of the value investing philosophy is: Good Companies + Cheap/Discounted Prices = VALUE BUY.
Abigail Doolittle of Peak Theories believes that the market could correct 25-30%. I don't know if that would happen, but if it does, that would be an ideal discount for a portfolio. Bear markets shouldn't be feared to the extent that they currently are, unless they persist and become a recession.
It would appear as if a bear market is brewing, but we'll never know until the S&P has a correction. I think we are headed towards a bear market, but it is so premature to say that. However, I do think that we would be headed towards correction territory if the S&P falls through 1925. If the market stays below 1925, this would become a great buying opportunity for value investors who have been eying that great company that is a little too pricey. We'll see whether the S&P enters into a correction soon. This would be great news for value investors because this would lead to better pricing for great companies.
