EarningsBeats.com Digest for August 31, 2020
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Considering a Downside Target for
the S&P 500
The recent stock market advance has been relentless with little in the way of selling. However, last week we saw the Volatility Index ($VIX) rising together with the S&P 500 and that can spell trouble. One bullish argument relates to historical precedence as stocks typically end calendar months on a positive note and Monday is August 31st. The 31st, 1st, and 2nd are absolutely the best three day period of the month for equities. But
as fear grows, we need to be prepared for at least a mild bout of selling fairly soon. So the big question is how much might we pull back? Well, the last time we saw any significant selling on the S&P 500, it was after the early June advance. The S&P 500 fell just past the 50% Fibonacci retracement level (pink lines below):
I don't believe it'll fall that much this next time, primarily because more stocks are in healthy uptrends and have broken out. I expect to see buyers step in quicker this time around. The blue lines on the chart above is the Fibonacci retracement levels off of the latest uptrend. At this point, we don't know where this latest rally ends. As I write this on Sunday evening, futures are pointing higher once again. From the eventual
top, however, I'll be looking for a 38.2% retracement. Currently, that would take us back to 3300. That number will rise, though, if the S&P 500 starts September off with the same buying that we've seen throughout the summer months. In terms of percentages, I believe we'll see a 5-7% selloff sometime during September. It's most certainly not guaranteed as secular bull markets can rise continually way beyond what any of us might think. But a bit of selling and
basing would be a very good thing from a longer-term perspective.
Happy trading!
Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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