Technical Analysis Update: Is This the Start of the Next Leg Down?
Stocks are down this morning.
We are due for a retrenchment.
Stocks have just staged a breakout to the upside from a triangle formation (blue lines in the chart below). This breakout has brought stocks right into overhead resistance (red line in the chart below).
So, it is not strange to see stocks drop here.
It is perfectly normal to see stocks drop to retest the breakout. The question is how far do they drop… and is this a buying opportunity or not?
How Far Will Stocks Drop?
Regarding the first half of that question – how far do they drop – I’ve drawn the major lines of support in the chart below (green lines). As I write this Tuesday morning, stock futures are already testing the top green line at 3,148.
The larger concern is that the upwards breakout didn’t see stocks hit new highs. This opens the door to this being a falsebreakout. And false breakouts typically lead to sharp violent moves in the opposite direction.
If this proves to be the case, we could easily see stocks drop to test 2,950 or even 2,880 on the S&P 500. That would mean an 8%-10% drop for the S&P 500.
However, the drop would likely feel MUCH worse for many stocks.
A Strategic Response to Market Movements
Take a look at high flying momentum stock Shopify (SHOP) to see what I mean.
It’s already down 4% in a single day and the next lines of support are either a 12% drop or a 20% drop.
I saw this move coming for the stock market yesterday, and recommended Strategic Impact subscribers close out our momentum plays – locking in gains of 8%, 9%, 16%, and 29%.
This is precisely what my Strategic Impact newsletter is designed to do: uncover little-known investment opportunities that are tied to massive shifts in the financial system… opportunities that will make you money from what’s coming down the pike.
And with the world getting increasingly more complex – between the pandemic, civil unrest, a looming election, and more – now is the perfect time to position yourself correctly.
Editor, Money & Crisis