S&P 500: How low can we go?
This is a crazy time in the markets. Huge rallies, rampant speculation over the Corona virus, and now the biggest weekly drop since the financial crisis. Putting all of the speculation to one side lets take a look at the charts.
Since the December 2018 bottom the market has been in a greatly accelerated uptrend. There were signs of irrational exuberance over the past year with many stocks going parabolic and now ending in a blow off top. Last weeks candle shows a strong impulsive move to the downside which suggests a change of behaviour at least in the short-mid term. Both the 2019 trend line and the prior resistance turned support line were broken, along with the 50 week moving average. The likely target for this move is the boxed zone in the mid 2000s, this is an area where buyers have stepped up before and is supported by the 200 week moving average and the 10 year trend line, both of which rebounded the market multiple times in the last decade. This would be a healthy bull market correction should we bottom out there.
Here we can see the macro bull trend and how far the price was getting extended. It is far too early to be calling for a bear market until we see a break of the trend line followed by consolidation below it. Should the market eventually turn bearish the boxed areas are where we want to be buying. The first being the two year consolidation period of 2015/16 and the second the "blood in the streets" 50% drop and retest of the prior all time high.
Since the December 2018 bottom the market has been in a greatly accelerated uptrend. There were signs of irrational exuberance over the past year with many stocks going parabolic and now ending in a blow off top. Last weeks candle shows a strong impulsive move to the downside which suggests a change of behaviour at least in the short-mid term. Both the 2019 trend line and the prior resistance turned support line were broken, along with the 50 week moving average. The likely target for this move is the boxed zone in the mid 2000s, this is an area where buyers have stepped up before and is supported by the 200 week moving average and the 10 year trend line, both of which rebounded the market multiple times in the last decade. This would be a healthy bull market correction should we bottom out there.
Here we can see the macro bull trend and how far the price was getting extended. It is far too early to be calling for a bear market until we see a break of the trend line followed by consolidation below it. Should the market eventually turn bearish the boxed areas are where we want to be buying. The first being the two year consolidation period of 2015/16 and the second the "blood in the streets" 50% drop and retest of the prior all time high.
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