When the market broke down in late September of 2018, it hit a low on Christmas Eve
which represented a decline of just over 20%. Almost immediately, it began a bounce. Looking back, historically, over several decades such a decline has seldom if ever been followed by a sharp, sustained increase back to the previous highs.
Listening to other market mavens and reading numerous articles lead us to suspect that if traditional trading patterns held true, the market as measured by the S&P 500 should have run into resistance at approximately 2585. It paused only slightly there for about 3 days. The next resistance level was roughly 2637, and it would take news such as a relaxed posture in the trade war, or an obvious shift in Fed policy to be the catalyst above that level. To some degree, those catalyst have come to pass. Reports indicate some progress in the trade war with China, and Fed Chairman Powell today saying, “The case for raising rates has weakened.”
At this point, the S&P 500 should run into its 100 day moving average at approximately 2705. It should meet resistance at that level. If it fails there, we might anticipate another decline. It could even get painful again, possibly retesting the December 2018 low. Markets typically pay attention to these levels of support and resistance. For this reason, we maintain a significant cash reserve to remain somewhat hedged, and to take advantage of potential bargains.