How Much Further Will The S&P 500 Drop?

How Much Further Will The S&P 500 Drop?

Two aspects of the natural movement of the price of an asset make investing a challenge. 

  1. The price never moves in a straight line when trending. 
  2. Anticipating the end of corrections and a move back in the direction of the long-term trend.

The S&P 500 has declined 7% since finding resistance at the daily 200 simple moving average. 

We want an answer as to whether this is just a pullback before a continuation to the upside or if we can expect further weakness towards the low of June. 

The reality is that we have no idea. We can only let price action reveal itself, and we react accordingly. This is the simplest way to approach investing. People often try and outsmart the market, predicting what the price is likely to do next and how losses rack up. 

However, we can build a bias to price action and anticipate what could potentially happen next. 

As a trend follower, my overall bias remains bullish. This is in line with the bull trend in play since 2009, despite the correction this year. 

The 7% correction was also expected as the price failed to retest the $4000 round number as resistance-turned-support when it broke above at the end of July. 

Below is the daily timeframe.

When the price shoots through a critical level, the correction to retest it can be equally aggressive. That is what we are currently seeing on the S&P 500. 

Now what remains to be seen is if the $4000 round number holds strong as support and pushes the price back to the daily 200 simple moving average.

I remain on the sidelines and will start buying back into stocks once a bull trend has been confirmed above the daily 200 simple moving average. 

If the low of this year is broken, I will be ready to short the market. 

For now, the price remains in a period of uncertainty. I can continue to apply patience with my stance firmly on capital preservation. 

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