Fiscal cliffs and jolly handshakes between mortal political enemies are leaving investors in a curious state of flux. Is this sell off simply nervous investors locking in profits before capital gains tax possibly skyrockets higher or does it portend something more ominous in the offing?
Short of inside information or some type of mystical second sight we’ll never know for sure until after the fact. Even the very best of technical indicators are little more than handicapping mechanisms that give us the ability to determine how likely it is an event will take place, they are not crystal balls.
So far the indicators that we use at ETFWarrior.com suggest that this sell off is a buying opportunity in an on going uptrend. So there are two ways to play this. One of you are a long-term investor and another is you are a short-term trader.
Long term investors can buy the S&P 500 index right here as it sits below its 200 day moving average. The easiest way to do so would be to buy the ETF SPY. This ETF will give you direct exposure to every gyration the S&P 500 experiences.
Could the S&P 500 go lower, sure it could! But if you are a long term buyer, dollar cost averaging into the S&P 500 on pullbacks below the 200 day moving average will have you stacking up a systematic series of great long term entry points into this index.
Short-term traders can do the same thing but they’d want to use a stop loss on the trade at $126.
The other index to take a look at is the NASDAQ 100, the QQQ. Both long-term investors and short-term traders can buy the index right here at $62 and change. Once again this one has plunged below its 200 day moving average and represents a buying opportunity.
Long-term investors can use pullbacks below the 200-day moving average as a dollar-cost-averaging opportunity and short-term traders can view this as an oversold-bounce trade. Short-term traders would use a stop loss of $58.
One sector to avoid like the plague right now though is semiconductors. The semis have been beat up and they look cheap but I think they have some more downside in them still left to settle. SOXX is the iShares Semiconductor Index, an active semiconductor ETF and it’s been massacred lower from $60 to $48.46. I’d love to buy it…. but not yet. If $48 fails to hold this one could tumble lower to $44-$45.