Here Are Two Positive Omens For Stocks

Here Are Two Positive Omens For Stocks
Luke Suddards

10 months ago1 min

This chart should be music to your ears if you’re bullish on stocks. It shows that, in each of the times since 1954 when the S&P 500 has gained over 5% in January after a negative previous year, the index has gone on to end the year with some really chunky gains. We’re talking: almost 30% for the year on average.

And we saw another good omen last week: there was a “golden cross” in the S&P 500. This happens when its 50-day simple moving average (SMA) crosses above the 200-day SMA. These crosses, when they’ve coincided with the index being at least 10% below its all-time high, have resulted in a positive move in 15 out of the 16 times since 1950 – with an average 15.7% gain over the next year.

That’s a lot of good mojo, but it doesn’t guarantee a stellar year for stocks. There are still plenty of reasons to be cautious – with stock valuations high, and the outlook for inflation, interest rates, growth, and fiscal policy (that troublesome debt ceiling) all far from certain.

So if you’re going to play offense in this market, it makes sense to do it defensively. Dollar-cost averaging, buying a set amount on a regular basis, is a smart way to invest gradually. A trailing stop-loss – that is, an adjustable exit level for the trade if it moves against you that ratchets up to a better place when you’ve seen some gains – also can help guard you against losses that are outside your comfort zone. Consider setting your exit level below an area of major price support or based on a certain loss percentage, such as 2% of your overall portfolio.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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