MarketCycle Wealth Management
In late July, MarketCycle alerted clients to the possiblity of a difficult two months during August and September and that has certainly occurred. Because the market is otherwise so bullish, this is the type of pullback that one just has to ride out, knowing that it is normal and temporary and that it will end.
Normally, October through New Years is a strong period.
The stock market has already priced in one final Federal Reserve interest rate hike of 0.25% and, if so, this may arrive in November. What investors had not fully come to grips with is just exactly how dysfunctional Congress is. Congress wastes money that it does not have and then it doesn’t want to pay the debt when it comes due. This funding problem is usually worked out, and it will also be worked out this time, but investors have come to the conclusion that this time around, it might be delayed enough to cause a downgrade of the credit-rating of U.S. debt. This would not be good and just the thought of it is driving the market lower.
Also, through the corner of their eye, investors are watching how the price of oil and gasoline will affect inflation levels. And of course, food companies are reluctant to lower their prices no matter what happens to inflation. MarketCycle, several months back, said that the pace in the drop of inflation would slow (and it has) and then eventually (in another year?) level out at a higher level than the Fed expects… perhaps 3-3.5%. Everything takes time.
So, we are currently in a new cyclical stock bull market but we are going through a common and routine correction that is going a bit deeper than normal. This is mostly a gift from Congress.
MarketCycle’s downside target is for the S&P-500 to touch 4200 (unless current support at around 4270 holds). This would represent the confluence of oversold conditions, the 200 day simple moving average, cyclical trendline channel support, strong horizontal support and an important Fibonacci retracement level… all converging at the exact same 4200 area. This offers incredibly strong support that, in my current opinion, is likely to hold. (If this holds, then the stock market would move higher from that 4200 area.) A break below this area for longer than one day would cause MarketCycle to rapidly re-think.
Chart showing downside target of 4200 (posted at 11:30 AM EST on September 26, 2023). However, at this moment the S&P-500 is sitting near higher (also fairly strong) support which is @ around 4270 and there is a chance that this support might hold… it cannot be ruled out as of yet and it also must be watched carefully.
That’s it. Thanks for reading!
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