Navigating the Market Correction: Testing Support Levels for the S&P 500
The market correction has officially begun and it is an important moment for traders and investors alike. The debate between bullish technical improvements and bearish fundamentals is an ongoing battle. To confirm whether the breakout is sustainable, and if the bear market is cancelled, a pullback to the previous downtrend line that holds is crucial. If the pullback to support holds, it will be a break above the highs of this past week, confirming the next leg higher. The goal should be set at 4300-4400.
Investing for the recovery is wiser than trying to pick the bottom as the market is showing more signs of strength than the S&P 500. To navigate whatever happens next, we must keep the 4105SPX region in mind as our support. If it holds, it points us to 4216-4250SPX. If it breaks, it opens the door to another drop down to the 4000SPX region.
As a contrarian investor, an imbalance is created when everyone is investing in the same direction. At the highest point in January 2022, everyone was extremely optimistic, not expecting a 20% drop. Sam Stovall, the investment strategist for Standard & Poor’s, once stated: “I-Bear: secular inflation (= higher rates & volatility) + end of era of QE (Fed bought $7.5tn since Lehman) + end of era of US buybacks (corporations bought $7.7tn since Lehman). I-Bull: that script changes if a hard landing in wages occurs before a hard landing in economy, if post-pandemic world reverts to bullish secular stagnation of past 15 years. I-Wrong: inflation shock caused rates shock & Wall St shock but thus far is yet to cause recession shock; lag from easy monetary policy (through Wall St) into economy was instant in 2020; lag from tighter monetary policy has been much, much longer past 12 months; that’s because recessions are caused by re-financings & redundancies, and neither happening“
The last part is the most critical, as no one expects the Fed to cut and politicians to panic via more stimulus checks, rebates, and debt forgiveness, at the first blush of recession.
The market correction is currently testing multiple levels of support for the S&P 500.
0. “Bullish Signals. Bearish Outlooks. – RIA” Real Investment Advice, 11 Feb. 2023, https://realinvestmentadvice.com/bullish-signals-bearish-outlooks/
1. “The Correction May Have Started, Will Bulls Remain In Control?” Real Investment Advice, 14 Feb. 2023, https://realinvestmentadvice.com/the-correction-has-started-but-will-the-bulls-remain-in-control
2. “Opportunities for investors in this bear market” Daily Herald, 5 Feb. 2023, https://www.dailyherald.com/business/20230205/opportunities-for-investors-in-this-bear-market
3. “Sentiment Speaks: The Most Important Thing To Know About The Market Right Now” Seeking Alpha, 6 Feb. 2023, https://seekingalpha.com/article/4575529-most-important-thing-about-market-right-now
4. “The Most Important Thing to Know About the Market Right Now” Moneyshow.com, 8 Feb. 2023, https://www.moneyshow.com/articles/tradingidea-60356/the-most-important-thing-to-know-about-the-market-right-now/
5. “The Correction May Have Started, Will Bulls Remain In Control?” Seeking Alpha, 15 Feb. 2023, https://seekingalpha.com/article/4578356-the-correction-may-have-started-will-bulls-remain-in-control
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