To S&P or not To S&P? Major Resistance at 2600, Support at 2350
Wow....What a volatile 2018! Hope everybody and their investments didn't get hurt as bad as they could have been. Looking back on my old charts, I'm reminded that about a year ago, I called the top in Bitcoin (
and the correction/drop in the market early February 2018 (
Most of my calls this year came true...Could be total technicals #beginnersluck, but I'm willing to take a stab at it.
First of all, some context. Back in mid-November 2018, I saw a #doublebottom forming on the SPX SPY chart...And then I saw that double bottom start to fail, as the double bottom couldn't breach resistance of 2800 on SPX. Instead of thinking that a triple bottom would form/hold, I got concerned, and rebalanced my portfolio from 90/10 stock/bonds to 30/70 stock/cash...And then missed out on getting hurt in this massive December 2018 >20% correction down to a bear market. (For anyone that doesn't believe me, I have the dated screenshot from my brokerage to confirm this)
Suddenly, in 2019, it seems people are still pretty positive, but my reading of the charts/supports/resistances is anything BUT positive. Even though we bounced off of SPX 2350 (which I see as support now) and are above the psychological level of 2500, we have not repeat NOT cleared what I see as a major 2600 resistance (which used to be prior support, back in February/April/May/October 2018). Now that the market has broken through this, I wouldn't be positive about the market at all until it breaks, closes, and MAINTAINS above 2600.
I believe more likely, the market will probably the next week or so, then run into 2600 (right around the time Q4 earnings is released), not breach/stay above it and then bounce down. Maybe another double bottom attempt will occur around the 2350 support level, and that would be a better time to get back in the market...OR we have another failed double bottom attempt, and then we are looking at a big possible drop to all the way down to 2100, which would represent end of 2017 levels and an almost 27% drop from the highs of November 2018. In my WORST case scenario, the lower resistance of 1900 (representing the beginning of a 2.5 long term trend line, in green) would be hit, which would be a >37% drop from the November 2018 highs, and nearly on par with the Great Recession of 2008.
A couple more negative things to expect coming out way:
1) Brexit in March 2019...Whether Great Britain ACTUALLY leaves the EU in March 2019 OR backs out last minute, I think the market will take either event as a negative sign, since either way leads to market uncertainity
2) China trade wars/tariffs are still in effect, AND China spending is way down, which will affect the Q4 Earnings Reports (and most importantly, guidance) of many, many SPX companies. This is why AAPL stock dropped almost 10% just recently. Think about how many companies have exposure to China/make things in China.
3) The Fed will continue to raise rates, which looks to occur also again in March 2019 coming up.
4) The US Government shutdown is potentially going to last a lot longer than we think. Sure, the House passed a bill to reopen the government...but ONLY the House, which is Democratically controlled. The Senate will likely not accept this bill/vote against it, and will have to revise it. And the Great Man In Orange is super volatile and could even veto anything he doesn't like. I really think this government shutdown potentially lasts a lot longer than people think.
Of course the China/global trade wars working out with a trade agreement, the Fed pausing on rates, or the government reopening (OR great Q4 earnings and guidance) could change all of this. But the long term trend line is broken, the intermediate trend is DEFINITELY down. My money is on the market not being able to breach 2600 for awhile, and possibly falling below 2350 down to 2100. If we are lucky, all we do is bounce btw 2350 and 2600 for awhile and are range bound or slowly form a triangle.
It's too late to get out or rebalance if you haven't already, like I did in November. You might as well hold on, and consider getting more conservative if we cannot sustain above 2600 and head back down (which would be the formation of the 2nd leg of a double bottom "W" chart pattern). If you believe in slowly adding to portfolios over time and long-term the market will go up (Optimistically, you are definitely going to get a 20% return on your investment when we eventually reach November 2018 highs of 2950 again, as the market is at 2450 now and that represents a 500 point gain...The problem is, how long will that take?), then by all means slowly and regularly contribute and invest like Buffett.
All I'm saying is, any long-term rally is much more likely to succeed if the market can breach and stay above 2600.. Otherwise, I see a much greater likelihood of it going back down to 2350, or even 2100 as I said. I hope I'm wrong, but at the same time, the market going down to 2100 would represent one of the GREATEST buying opportunities of the last decade...So for now I am SHORT SPX SPY, until the charts show sustained support above 2600.The trend and charts are clearly DOWN...I don't think it's good to fight the trend, FWIW.
First of all, some context. Back in mid-November 2018, I saw a #doublebottom forming on the SPX SPY chart...And then I saw that double bottom start to fail, as the double bottom couldn't breach resistance of 2800 on SPX. Instead of thinking that a triple bottom would form/hold, I got concerned, and rebalanced my portfolio from 90/10 stock/bonds to 30/70 stock/cash...And then missed out on getting hurt in this massive December 2018 >20% correction down to a bear market. (For anyone that doesn't believe me, I have the dated screenshot from my brokerage to confirm this)
Suddenly, in 2019, it seems people are still pretty positive, but my reading of the charts/supports/resistances is anything BUT positive. Even though we bounced off of SPX 2350 (which I see as support now) and are above the psychological level of 2500, we have not repeat NOT cleared what I see as a major 2600 resistance (which used to be prior support, back in February/April/May/October 2018). Now that the market has broken through this, I wouldn't be positive about the market at all until it breaks, closes, and MAINTAINS above 2600.
I believe more likely, the market will probably the next week or so, then run into 2600 (right around the time Q4 earnings is released), not breach/stay above it and then bounce down. Maybe another double bottom attempt will occur around the 2350 support level, and that would be a better time to get back in the market...OR we have another failed double bottom attempt, and then we are looking at a big possible drop to all the way down to 2100, which would represent end of 2017 levels and an almost 27% drop from the highs of November 2018. In my WORST case scenario, the lower resistance of 1900 (representing the beginning of a 2.5 long term trend line, in green) would be hit, which would be a >37% drop from the November 2018 highs, and nearly on par with the Great Recession of 2008.
A couple more negative things to expect coming out way:
1) Brexit in March 2019...Whether Great Britain ACTUALLY leaves the EU in March 2019 OR backs out last minute, I think the market will take either event as a negative sign, since either way leads to market uncertainity
2) China trade wars/tariffs are still in effect, AND China spending is way down, which will affect the Q4 Earnings Reports (and most importantly, guidance) of many, many SPX companies. This is why AAPL stock dropped almost 10% just recently. Think about how many companies have exposure to China/make things in China.
3) The Fed will continue to raise rates, which looks to occur also again in March 2019 coming up.
4) The US Government shutdown is potentially going to last a lot longer than we think. Sure, the House passed a bill to reopen the government...but ONLY the House, which is Democratically controlled. The Senate will likely not accept this bill/vote against it, and will have to revise it. And the Great Man In Orange is super volatile and could even veto anything he doesn't like. I really think this government shutdown potentially lasts a lot longer than people think.
Of course the China/global trade wars working out with a trade agreement, the Fed pausing on rates, or the government reopening (OR great Q4 earnings and guidance) could change all of this. But the long term trend line is broken, the intermediate trend is DEFINITELY down. My money is on the market not being able to breach 2600 for awhile, and possibly falling below 2350 down to 2100. If we are lucky, all we do is bounce btw 2350 and 2600 for awhile and are range bound or slowly form a triangle.
It's too late to get out or rebalance if you haven't already, like I did in November. You might as well hold on, and consider getting more conservative if we cannot sustain above 2600 and head back down (which would be the formation of the 2nd leg of a double bottom "W" chart pattern). If you believe in slowly adding to portfolios over time and long-term the market will go up (Optimistically, you are definitely going to get a 20% return on your investment when we eventually reach November 2018 highs of 2950 again, as the market is at 2450 now and that represents a 500 point gain...The problem is, how long will that take?), then by all means slowly and regularly contribute and invest like Buffett.
All I'm saying is, any long-term rally is much more likely to succeed if the market can breach and stay above 2600.. Otherwise, I see a much greater likelihood of it going back down to 2350, or even 2100 as I said. I hope I'm wrong, but at the same time, the market going down to 2100 would represent one of the GREATEST buying opportunities of the last decade...So for now I am SHORT SPX SPY, until the charts show sustained support above 2600.The trend and charts are clearly DOWN...I don't think it's good to fight the trend, FWIW.
