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<\/p>\nOne way or another, the S&P 500 is going to retest the lows it made earlier this month. That “retest” will set the stage for a solid year-end rally. So, I’m happy to buy into a decline below 2725 on the S&P 500. But, I just don’t think we’re set up to see that sort of decline just yet.<\/p>\n
Instead, I think the stock market is going to make one more surge higher. It’s going to convince folks that the worst of the decline is over. It’s going to sucker cash-heavy investors into chasing stocks higher.<\/p>\n
Then, just as it looks like stocks are ready to blast higher, and all the talking heads in the financial media are screaming about the year-end rally, we’ll get a retest of the early October lows.<\/p>\n
That’s when it will be time to buy with both fists.<\/p>\n
Until then, tread lightly. Be willing to sit on losses in anticipation of a year-end rally. But, don’t get too aggressive with long-side bets just yet. The next few weeks are going to be a bumpy ride.<\/p>\n
Here’s an updated look at the daily chart of the S&P 500…<\/p>\n
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The easiest thing would be for the market to just drop down right now and retest the 2725 level from earlier this month. Technical conditions are oversold enough that such a retest would mark an important bottom for the market. Then we could get on with a decent rally going into the end of the year.<\/p>\n
But the market rarely makes it so easy.<\/p>\n
Take a look at the action back during the February correction. Back then, the market took a full six weeks before it dropped back down and retested the February lows.<\/p>\n
Similar action this time would have the S&P 500 rallying off of current levels. The index might even get high enough to challenge the resistance of its 50-day moving average<\/a> line – at about 2850 or so – before dropping back down to retest the recent lows.<\/p>\n One way or another, though, we’ll see the S&P 500 hit 2725 again.<\/p>\n If it happens this week, I’ll take it. And, I’ll buy into oversold conditions in anticipation of a year-end rally. Otherwise, I’ll be looking for a short-term rally this week that squeezes out all the folks who’ve been buying put options into oversold conditions. Then we can look for a retest of the lows sometime later next week.<\/p>\n I think the latter scenario is the most likely at this point.<\/p>\n Either way, though, I’m looking to buy at 2725 or slightly below.<\/p>\n Best regards and good trading,<\/p>\n Jeff Clark<\/p>\n Do you see the stock market rallying before the end of the year? How do you plan on trading during that time?<\/p>\n![](\"https:\/\/casey-assets.s3.amazonaws.com\/images\/misc\/jeff-clark-signature.png\")
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