When Selloffs Are Buying Opportunities

The market has been led by the semiconductors since the lows of January-2016, and I think that as long as this index maintains its uptrend, it favors higher prices for the general market.

At the moment, the semiconductors are looking healthy based on the weekly chart below, and the low of February-2018 is now an important support level.

A break in the uptrend line would be a caution signal, but a break down below the horizontal line would put the semiconductors in a downtrend and would probably do the same for the general market.
 

I like to buy large caps and ETFs during the periodic major market selloffs. You get two or three of these opportunities per year. The strategy works as long as the general market is rising.

This current selloff looks like a good opportunity to me.

The market ran up way too high in January, which provided a nice opportunity to take profits. And now the market is very jittery, which is providing an opportunity to buy.

I know it isn't that simple, but it just seems to me that none of the reasons cited for the jittery market are new. They were all known over the last year while the market ran up higher and higher.
 

Here is another look at the market. I really like this Pring Dow Diffusion Indicator.

I think that when the Dow is above the 200-day, and the indicator is below zero, then it is a set up for buying on the dip.

However, when the indicator is below zero, and the market dips under the 200-day, then it is time to worry about a larger decline in prices.
 

This chart continues to favor higher stock prices longer-term based on the ECRI index and the small cap uptrend, although the lack of M2 growth continues to be a concern.
 

Check out the Friday post to see my thoughts on the short-term trend.

Outlook Summary:

Higher rates are now a headwind for US stocks. The recent tax cut, the $300 billion spending increase, and the already out-of-control federal deficit are a set up for a very dangerous spike in interest rates.

Something else to consider is the Mueller investigation. I worry that the headlines generated by the investigation may rattle the markets more than people are currently anticipating. If Mueller-related headlines get closer to the White House, then they would probably hurt stocks and help bonds.

The long-term outlook is cautious.
The medium-term trend is down.
The short-term trend is up.

Strategy:

I added to my large cap holdings today, and now my accounts are about 65% stocks. The remainder is invested in a managed bond fund, and an inflation protected bond fund.

• Buy large cap stocks and ETFs on pullbacks of the medium-term trend.
• Buy small cap growth stocks on break outs to new highs during short-term up trends.
• Stop buying when the short-term trend is at the top of the range.
• Take partial profits when the uptrend starts to struggle at the highs.
• Never invest based on personal politics.