I know we are seeing some wild action this morning following the weekend attacks against a Saudi oil complex and we’re on tap for another Fed cut meeting on Wednesday (which could bring some sell the news profit taking from traders), but the window for a serious stock market decline before the end of the year is closing.
In August we saw the stock market go up and down with one big 700 point plus down day for the DOW, but the S&P 500, DOW, and Nasdaq all held up on their 200-day moving averages.
For a real serious correction to play out they need to close below that critical support level. In September the market rallied enough last week that it has gotten far enough away from that 200-day moving average to make it so that it is very unlikely to go through that level before Thanksgiving at least.
Take a look at the chart.
The market has rallied enough that if it were to fall to the 200-day moving average it would likely fall to it first and have a bounce before it could break it for good. In other words it would take a topping process for the market to really rollover and break down and that just takes time.
And that would take enough time now that it is making less likely that a serious stock market drop is going to hit before the end of this year.
However, this doesn’t mean everything in the stock market is poised to just go up. We are still seeing a bit of a rotation out of many of the popular fad stocks like AAPL, FB, NFLX, and GOOG and into “value” and small cap stocks that lagged during the summer. That’s where the market strength is at the moment.
And of course we got oversold rallies in weaker sectors last week such as the dope stocks, but it isn’t clear if that move is going to lead to a real rally that can last or is just a dead cat bounce into resistance.
Take a look at this chart of ACB for example.
ACB had a nice bounce at the start of this month, but it faded last week. The problem is it has been below its 200-day moving average now since June and remains far below it. Stocks that do that tend to have bounces that fade when they are lagging the action of the stock market averages.
For ACB to go back up to new 52-week highs it is going to have to build a base first.
Despite that ACB remains the number one stock owned by the most number of people that own Robinhood accounts. I watch that list and the surge in owners came in February and March as people chased the rally. The same thing happened with GE at the time too.
Really what happened is many small traders gave up on stocks like AAPL and NVDA because they fell worse than the market averages during the 20% decline in the S&P 500 at the end of last year and used that money to chase what was going up the most at the time – dope stocks and stocks like GE.
It’s not in a great trading position now.
I like to focus on the most optimal situations. The number one trading pattern I have ever used is something I call The Two Fold Formula. This pattern is lining up in many small cap mining stocks now.
I put out a book about it last year you can grab and read it by going here: