Check This Before Selling
Igor Manukhov - Aug 21, 2023
The market is getting oversold. When that happens, the bottom is near. Keep calm and carry on.
August is turning out to be a pretty poor month so far. At times like this it’s important to follow the process and avoid emotional decisions. I believe that we are in the early innings of the next bull market and what we are seeing now is a correction, not the beginning of the next bear market. Therefore, I believe this bull market deserves the benefit of doubt.
As always, I review charts to make more educated decisions.
First of all, the relentless selling in August has put the markets in a fairly oversold condition. The RSI indicator (Relative Strength Index in the middle panel) is near an oversold reading of 30. Historically, it has been a bad time to sell stocks when RSI is near 30 (see pink circles). Usually, there is at least a rebound of some sort. So, now is definitely not a good time to sell.
Despite the recent selloff, high yield bond spreads remain low (orange line). I wrote about this last week. If the market is in trouble, you will see spreads go up (orange line will start to go up).
If there is more downside to this correction, I expect some sort of support at around 4200-4300 (horizontal red line), which is only 2-4% from the current level. Barring any significant negative surprise, I would use this selloff to put funds to work.
