Stay Focused On The Big Picture

Hello everyone. As you know April 30 was the last trading day of the month so today is the monthly update for April. Below is a chart of the monthly closing prices of the S&P Index (click on image to enlarge). If you shift your eyes to the right edge you'll see that the index closed at 1186.69. This close is higher than the March close which is bullish. My other indicators do point to potential weakness over the next 1-3 weeks. So it would not be unusual to see a decline of 1-5% over this time frame BUT the most important thing is on a long term basis the market remains bullish. The green buy arrow from March, 2009 remains in effect.

FOR YOUR EDUCATION: Some have asked me why I use a chart of the monthly closing prices to determine long term market direction. There are several reasons but the most important is that IMHO examining monthly closing prices allow you to filter out the daily and weekly fluctuations that otherwise may cause you to panic and thus exit you position prematurely. Let me illustrate what I mean. Click on the chart again. Notice the red down arrows numbered 1-10. Arrows 1-8 represent the maximum monthly percentage declines the market experienced between the April, 2003 green arrow and the November, 2007 red arrow. Arrows 9-10 represent the maximum monthly percentage declines since March, 2009. As you can see during these bull markets no decline exceeded 5%. The lesson to be learned is this; it is normal for a bull market to experience "temporary" declines ranging from 1-5% before the market resumes it's upward trend. I guarantee you that during many of these "normal" declines there were days that the S&P may have dropped 30-50 points, causing many to wonder, perhaps panic and maybe even exit their position. They then sat and watched the market take off again while their money earned 1% or less in a money market fund. SUMMARY: Stay focused on the big picture and do not let the daily fluctuations and news stories affect your investment decisions.