.SPX: A Healthy Decline Scenario ~5% to Start
$.SPX(.SPX)$ thoughts: The index closed the week down 1.37%, with market breadth shifting negative as more stocks hit new lows than highs across Nasdaq and NYSE markets—even after the recovery Friday. Early October came with slowing momentum, an amber caution sign then.
Market dynamics shift quickly, and while each environment has its unique narrative, my approach—focusing on short-term trend, breadth, and momentum makes for a clear-headed, emotion-free strategy. Each vertical line in the chart below is an instance where all three criteria signaled risk-off. Last Thursday all three signals triggered the alarm: we're officially in a risk-off mode, again. The fourth time in 2024.
This approach has effectively flagged recent declines, though this year’s corrective moves have been shorter and much less severe compared to the much sharper and longer in duration drops of 2022 and 2023.
My speculation: In the short term prices above 5780 (+1%) put a lid on bears, price below 5675 (-1%) suggests a feeding for the bears before hibernation season.
In the bear scenario 5400 is a good spot to consider as an initial target.
In bull scenario, likely another series of all time highs until participants are bathing in euphoria. There is not much evidence of euphoria yet, the Fear & Greed Index is neutral, and fund manager exposure (NAAIM Index) is about average for the year. In euphoria, I tend to think fund managers will position client portfolios in front of the freight train and the Fear & Greed Index is in the nosebleed section of Extreme Greed.
My analysis points me toward a healthy decline scenario ~5% to start.
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