The holidays are going to be a bit less merry than we would like, that is for sure, but even though the market has shown few strong signs as of late, we have not yet broken major support. We are very close and with tax loss selling ending this week if we do break support I expect a bounce back over the short term.
Here is where we are:
The S&P 500 just broke its triple bottom it has held since the end of October, we tested this bottom multiple times and held, and losing this support is negative. This bottom is less than 20 S&P points from a breakdown through the January – February support level. Given they’re buyers are completely on strike, its pretty likely we break below. This is the week before holidays, volume is low and tax loss selling is likely to push us below this support.
Here is the support over a longer term 5-year time horizon, if we entered another leg lower, I would expect another 10% from the high to take us down around the 2,200 level on the S&P 500. We don’t expect this to happen (or want it to happen), but realistically, it could.
Here is the Nasdaq. The Nasdaq is important because it is the leading market. It is also holding barely above support and has 200 points to the downside before it breaks support. The S&P 500 could break, but we don’t think the Nasdaq will, if it does, that isn’t good news.
Again, here we are on a 5 year time horizon, an additional 10% downside would put us down below 6500, from about 8000 start. We don’t think its likely at all to see the leading index fall like this.
Right now, we have nothing but negative sentiment, but the market moves aren’t really on heavy volume or that fear based or panicked. Its simply people are worried and no one is a buyer. If we suffer a further breakdown in the new year we’ll take a bit more cash to the sidelines and build from there.
We’ll be here all through the holidays watching closely, but after this week we won’t put too much weight on the market action, as the volume is too low.
I’ll be on BNN New Year’s Eve- haze the new guy!