The S&P 500 fell nearly 1% in early trade Tuesday as second thoughts came roaring back following last week’s strong surge higher.
The index slipped under 4,400 at the open and it wasn’t able to reclaim this psychologically significant level despite a nice midday bounce.
This is a tipping point. Either the index gets back above 4,400, or it doesn’t. If we get turned back by this level Wednesday, the selling will likely continue for a few more days.
On the other hand, if the index closes decisively above 4,400 Wednesday afternoon, then the worst of the selling is already behind us and higher prices are coming our way.
My intuition and experience tells me the selling still has a way to go before it is finished. The market loves symmetry, and big runs like we experienced over the last few weeks are always followed by similarly enthusiastic step-backs.
At this point, this violation of 4,400 is guilty until proven innocent. If we can’t get back above 4,400 Wednesday, position yourself for more selling. The most aggressive can keep holding their shorts with stops near Friday’s close. For everyone else, keep waiting and watching for the real bounce because Tuesday afternoon probably wasn’t it.
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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.