S&P 500 - A Predictable BounceWe all knew this was going to happen. You don’t need to be Bill Ackman to realize that the S&P 500 would hit its head soon.
It was predictable - easy to spot.
The question is though: is this a simple retracement or the beginning of a crash?
The only certainty is that every time that the S&P 500 touches its 4-year resistance line, bad things are going to happen in the immediate future. Same pattern in the previous 4 years.
COVID19 potential second wave, civil unrest all over the US, November's elections, outrageous tech valuations, and new retail investors inflating the TSLA or AAPL of this world. After all, RobinHood “democratized” investing - or maybe put a dangerous toy in the hand of the wrong kids, by creating the biggest mass-market manipulation tool of the history, some might say.
It seems to be the perfect recipe for a crash.
Or maybe not?
Perhaps we are assisting to a natural retracement where we pull-back a 10-15% before we are ready to roll again.
Perhaps there is no tech bubble and the Nasdaq is safer than we think. Tech is different nowadays - it has a real impact on anyone’s life. And for enterprises, it accelerates growth and saves costs - it’s a must, not a luxury.
What if the sell-off was initiated by institutional algos? There is no strong catalyst at the moment to justify what happened. The price hitting the resistance level might have triggered institutional algos to book profits. This might have created a chain effect that snowballed to all indices and to retail investors (who, rightfully, panicked).
I personally believe that this is a healthy pull-back and that we should be able to hold up until November's elections.
Who knows? No one knows, no one can know. We can only give opinions.
Let's see what happens today and, most importantly, next week.
Let's be cautious, but let's not panic just yet.
When it comes to my trading activity, I will sit on the sidelines until I get some clarity. I might be back on Tuesday with new setups, or maybe the week after. If the sell-off continues I might add more short setups, as long as there is some rationale behind.
We had a tremendous August (up more than 200% and with an 85% win ratio) and a great start of September.
Time now to be grateful, study, enjoy a little break and hope for a new direction soon.
The important thing is to have a plan both at trading and investment levels and be prepared for such events.
I would love to hear your short-term outlook about the market, where do you see it heading in September, and how this is going to affect your trading (or investment) plan.
