The S&P 500 Index has now recorded 62 all-time record highs, year-to-date, the 3rd most in history, and the year is not over yet. According to Yardeni Research, the S&P 500 has had 10 ‘corrections’ of 5% or more since 2009. Other than in 2009, where the S&P 500 saw its bear market bottom, there has been at least one 5%+ correction every year, except this year. These corrections are highlighted below.
As is typical in bull markets , the technicals have lead the way, with the NASDAQ up 32.4% for the year. But recently, we have seen the tech darling stocks (Facebook, Amazon, & Apple) under-perform the S&P, by between 3.3% and 5.8%. This is another warning signal that at least a pullback may be underway here.
We have also seen the VIX Volatility Index, known as the ‘fear index”, jump off record lows, suggesting that investors are becoming a little more concerned.
While there is no way to know for certain if we will indeed get a correction here, we do want to make sure you are prepared. Every bull market needs corrections to allow the markets to take a pause, and gain momentum to re-charge. Periodic weakness actually increases the longevity of the bull market. These markets are due for a correction anytime now. A nice 5% or 10% correction would be healthy, and we would welcome it.
Here are the near-term numbers to watch for the S&P 500:
2525 – a drop below here would suggest a pullback is likely.
2515 – a drop below this level would open the door for a deeper correction
2400 – key near-term support, and if breached, a stronger correction is under way.
In our October 9th Musings, we highlighted that the markets were looking overbought and that a temporary top was likely forming. Understand that while we are looking for up to a 10% correction, a much bigger decline is certainly possible. We issued two trades for subscribers to play should we get the correction that we have outlined. Those trades are close to being triggered, so if you are not a subscriber and want to protect yourself from a potential correction, it is not too late.
Our models are calling for the S&P 500 to reach 3000, and even 3600, before this bull market run ends. Most investors have not been invested in this market, but have just recently started to jump in. A correction here would spook these new investors, which will provide a potentially great buying opportunity
If you would like to subscribe to The Trend Letter to receive all of our BUY & SELL signals, and receive a 38% discount off the regular rate, CLICK HERE
Stay tuned!
