Friday, December 12, 2014

How Low Could The S&P 500 Go?

What if there's no Santa Claus rally this year? That's what investors are asking themselves as they watch the market bleed lower on what should be good news.

For the record, I'm in the camp thinking there WILL be a Santa Claus rally. History is on the side of that.

However, there is a possibility we could see the same kind of pullback we saw in October, when the S&P 500 pulled back more than 9% (on an intraday basis) before heading higher again

Take a look at this chart ...
(Updated chart)

The lines I have put on this chart are as follows ...

  • The 50-day moving average and 200-day moving averages are self-explanatory.
  • 1950 is a 50% Fibonacci pullback.
  • 1918 is a 61.8% Fib pullback.
  • 1880 would be the same percentage decline as we saw (intraday) in October.

The economic news and consumer sentiment keep getting better and better. Stocks can go lower, though, if investors are worried about profits.  Considering that consumers make up a much bigger part of the economy than energy stocks, investor's shouldn't be worried.  But the difference between shouldn't and aren't, to paraphrase Mark Twain, is the difference between lightning and a lightning bug.

Anyway, who am I to stand in the way of anyone's panic? It just brings us to cheaper prices for the next rally.

Have a great weekend.

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