Key Takeaway
The S&P 500 has dropped below key support and is now retesting that level. So the million dollar question at this point is... Will it break up or break down? Despite personal bias's and constant slanted media input, the bottom line is no one knows and it's too early to tell. We are prepared for either direction. Should the S&P 500 not be able to break above the bottom red dotted line (see orange arrow), which serves as major resistance, then I would prepare for a "double bottom" (see bottom red arrow @ 3,900) or worse if it can't hold that level. Conversely, if the current levels are simply a consolidation of recent gains before a continued upside advance, then I could see the market easily running up the top channel (top blue line) and then find more resistance at the upper red dotted line. If it can beak out above this level (see green arrow), then the market would have made significant headway in repairing the technical damage done this year. As much as I would love to tell you what will happen, the reality is that we have to simply be prepared for either case. Although we are actively hunting for what we feel are good opportunities, the plan is to keep our cash levels relatively high until we get some technical clarity (which could happen in a few days or weeks). Something to remember is that the stock market is a "future's market" and tends to price in a "bottom" well in advance of an economic recovery, and so when we see the market making true technical advances, we take action.
Market Pros:
- Nice short-term rebound - will it break out and continue or break back down?
- Certain sectors and industries are holding up much better than others, and we are always on the hunt for good companies that are trending well.
Market Cons:
- The market is clearly still in a downtrend despite a nice bounce - lower highs / lower lows
- Strong overhead resistance - will be important to breakout above or we could have another leg down
S&P 500 Daily Trend Chart
