We're in the midst of an overdue rally that was needed to relive this oversold condition...nothing strange at all about it. Question is, how high can it go?
We explored this on our sister site ContraryInvesting.com, in an effort to figure out when it will be safe to short the S&P 500 again:
I did a quick back-of-the-envelope calculation – because markets are probabilistic, after all – to see where this retracement may end. For my calculations, I’m saying that this decline began at 1173 on the S&P, and ended at the intra-day low of 1040:
The magical retracement range you always hear about is approximately 38-62% of the previous move. This would put us somewhere in between 1091 and 1123.
Source: StockCharts.com
We hit an intra-day high today of 1098, and we sit just a point below this as I type. So the next turn down could complete this move.
Let’s sit back and see what tomorrow’s trading brings. If we do indeed get a rally towards the top end of my 1091-1123 range – or better yet, all the way up to Clark’s 1130 target, we’ll be looking to re-initiate our short position, for what we anticipate could be a doozy of a next leg down.Interested in shorting the S&P 500 too? Here's our thought process and recommendations:
- Yesterday's stock market bounce was pretty lame - but it set up today's follow through
- Earlier this week, the S&P showed strong support at 1050 - so we covered the short position
- But we still see stocks heading much lower, and soon
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