In a blog ~10 days ago, we looked at where markets may be headed. The two inferences then were that a downtrend may continue, and that a deeper fall in the markets in 2016 appears likely.
Frankly, I did not expect things to move as rapidly as in the chart above. SPX has fallen from 2061 to 1943 today, a fall of ~5.73%, which is rather significant. The usual suspects (you know, analysts) rattle as reasons softening Chinese manufacturing, the China market plunge cause, Chinese currency manipulation, and jitters about possible lower earnings this quarter, among all other potential causes they can hang their hats on. Some go so far as to say various moves by China to stabilize their markets remind them of moves made here in 1929. Fear mongering, especially the latter.
As this storm rages in markets all over (Asia, Europe, and the United States), it’s fair to ask if this is the beginning of a correction predicted. I think it is just as fair to say this is one among many swings downward – if a correction is indeed to occur this year. There is no rational reason to infer that any deep correction could occur all at once – especially when the FED board convinced itself that the US economy is in good enough shape to begin raising interest rates (which they did last month).
What about market technicals, what do the charts show? I’d hesitate to rely upon technicals at a time when fear is rising (the volatility index, VIX, climbing) and we see deep downward moves on a daily basis. Yet, while the move today did take us out of the lower Bollinger band, volume remains near or only slightly greater than average…there is no panic yet. And, there is support, near ~1900 for the SPX, where a double bottom formed in August and September.
Also, the market has seen five near-consecutive down days, with more than 1% moves on average, bringing it to its current level in a bit more than a week. A very rapid fall. A pull-back up to near 2000, which level will now be resistance, is just as likely as a plunge below 1900 to 52-week lows for the index.
So what’s a lay investor to do? If you’ve borne the fall this far, do nothing. I think that’s what billionaire investor Mark Cuban advised his ‘dusters’ too. If a pull-back up to near 2000 happens in short order, that will be your opportunity to exit positions if you’d like to stay on the sidelines.
Disclaimer/disclosure: I remain long energy, not the general market. Invest with caution always. I am not affiliated with any financial or other institution engaged in investments promotion or transactions.