Investors have done well buying into every small decline in the stock market over the past several months.
But, it’s too early to buy into last week’s dip.
Let me explain…
Stocks got hit hard last week. The S&P 500 lost 2.5%. It’s sitting right on the support of its 50-day moving average (MA) line. And, many technical indicators are in oversold territory. So, this is a logical place to look for the stock market to bounce.
But, any bounce from here is likely to be shallow and short-lived. And, once it’s over, the market has further to fall.
Take a look at this 2-hour chart of the S&P 500…
Over the past few months, this chart has been forming a bearish rising wedge pattern. Last week, the S&P broke to the downside of this pattern. And, it looks to me like there’s a lot more room for it to fall.
It’s typical, though, on wedge patterns, when it’s first broken and conditions get oversold, the stock bounces back up towards its former support line – which is now resistance.
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So, it’s perfectly reasonable to expect the S&P 500 to bounce a bit this week. Perhaps it can make it back up towards the 3900 level.
But, this chart looks bearish to me. Any short-term rally is likely to be followed by a more significant decline. At a minimum, the index is likely headed to the January low near 3700. And, quite possibly, we could see a move down to 3550 before the selling pressure finally washes out.
So, don’t get sucked in on any rally attempt early this week. It’s tempting to buy into last week’s decline. “Buying the dip” has been a successful strategy for the past several months. But, it may not work so well this time.
The market has further to fall.
Best regards and good trading,
Jeff Clark
Reader Mailbag
In today’s mailbag, Delta Report member Bill shares his thoughts on bitcoin…
Hi Jeff, I love your clear-headed approach on all your commentary. With all the “helicopter money” now, and more to come, gold is the ultimate protection. Bitcoin is a great idea, but who knows how that’s going to work out when we go to a digital currency. Please keep up the good work you do. I certainly profit monetarily and intellectually. Thanks again.
– Bill
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming – and send us any questions – at feedback@jeffclarktrader.com.