August Lows Could Be Revisited

 

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Fast forward four years and here we are. What does this mean for us? Well if history wants to repeat itself, then the market will trade back down to the August lows of 1867 on the S&P 500 (lows on SPY and ES actually come in the 1830 equivalent on the S+P 500), and maybe even trade down to 1820 – 1800 area. This would equate to a 15% correction which is not unusual inside of a bull market. As we have just seen, there have already been two previous corrections of 15-20% in the last five years. So if the market decides that it wants to continue its decent lower, investors should not become afraid or dismayed. This is part of the process and it will eventually set up for the next macro rally.

 

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But who’s to say that the August correction hasn’t already ended. The S&P 500 dropped 90 points to create a higher low, before ascending to last week’s high post FOMC. So a potential support zone going forward may be the 1930 level, which would match the size of the prior micro drop. As long as the market doesn’t spend much time below that level, I would say that odds favor the market moving higher (at least to 2040 on the S&P 500).

For investor’s, either scenario is hardly anything worth modifying your investment plan. With the low probability of a US recession in the near term, equities remain favorable. But it’s good to prepare for different outcomes.

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Michael Gouvalaris 5 years ago Author's comment

Agreed. Good news is bad and bad news is good... It's really made the job more difficult.

Moon Kil Woong 5 years ago Contributor's comment

I think it should be more like the lows will be revisited. Even the Fed realizes that the "growth" they were referring to is more like the opposite of growth as the economy slows down. The Fed has made a nightmare of economics by afflicting our economy with zirp rates all the way to the end of the economic cycle.