My appologies for the lack of chart on todays post. I’m having some computer difficulties that will be fixed by next week’s posting.
In my last post I mentioned that I felt the August 8th lows of S&P500 near 1120 would likely be the lows of the current bear market. I did mention that there would likely be at least one retest of this level (if not several tests) in order to create a proper base for the market to spring from. Last Friday saw a retest of that level. Our question should now be–will it hold?
This week will be critical to prove if 1120 will hold or not. I’d give it a good chance that it will, but as traders, we must patiently await a bounce from 1120 before we commit any more cash to this market. Should the S&P fail to hold 1120-ish, the next level of support lies around 1050. I would suggest that this level is a worst-case scenario. I am not in the camp of pessimists who foresee a return to the 2008-2009 bear market levels. Economists give the chance of a double-dip recession as fairly low (most foresee slow growth instead). Further, the corporate earnings scene is substantially better than it was 2 years ago. Rather than earnings deterioration, we are witnessing earnings growth surprises by over half of the companies that comprise the S&P500. This provides a floor to just how low markets can go before turning around, in my opinion. But, being a technician, perhaps I should just stick to what I know best: charts.
I will say it again: the recent combination of oversold momentum oscillators, sentiment indicators and levels of support at recent levels drive me to think that we are witnessing the formation of a base from the recent selloff. This basing activity will take a while to play out. My caveat is that a break of 1120 will likely see a move into the 1050 area for the S&P 500, which is a “livable” downside from here. While there is always the potential for a new bear market to emerge, I am optimistic that this would be a less likely situation. Exercise patience, wait for the market to prove it has found support, and look for your entry points.