Breather

If the futures are any indicator, this equity markets are in for a breather Monday. Signs point to a drop of over 1.5% for major indexes.

Before you go panicking about this pull back, be warned, this was not unexpected. Stocks have been on a major tear, trading about 1.5 standard deviations above their monthly trading average for the past several weeks. This kind of run is bound to tempt some short-term traders into profit taking.

Now that earnings season is fully underway and the Q2 projections are rolling out, it makes sense for markets to give back a little as traders trim gains.

The bigger question folks are probably asking is, ‘is this the start of something more serious?’

Too early to tell, but probably not ‘serious serious.’ Most of these pull-backs have been met with folks piling back into the markets. We need to see a sign that this is not going to be the case. However, given the low rates around the globe, one has to ask two big questions: 1) where else would I put my money? and 2) Has the Fed made any material changes in monetary policy that would lead me to change tactics right now?

The short answer to both of those questions leads to the short-term conclusion that the stock market is still the most likely option for folks seeking anything more than preservation of capital.

When looking at the support/resistance areas, the down-side target for this move is approximately 3217/3196. The lower of these figures is the 50-day moving average. The higher is about 1.5 standard deviations below the average 1-month trading range (a reversal of the last month’s trend). For context, that’s about a 2.3%-to-3% pull-back; not too ‘serious’ if that’s the extent of it.

Of course, should those support areas fail, a more ‘serious’ correction phase will need to be examined. For now, a pull-back and recovery towards or above prior highs looks likely to play out over the coming week or so.

As a side note, the coronavirus, while garnering headlines, is not yet to a point the markets are panicked about it. However, this is worth tracking.

The fact that the US Embassy has evacuated all US personnel is somewhat disconcerting. While the spread of the virus is relatively small at this time, one has to wonder what is NOT being said when we figure it’s safer to clear out an embassy than it is to just wash your hands more often. If this becomes a true pandemic, all bets are off.

We’ll keep an eye on this not-yet-situation-that-could-become-a-situation, but for now, let’s let the main thing stay the main thing.

Now, for the picture you’ve all been waiting for… markets go down, but probably back up later this week… assuming this coronavirus thing stays mainly in China… we’ll see…

SPX projections for the week of January 27th… take with the usual grain of salt
Note the 50-day moving average and support arrow – this is the area to watch. Pierce this and more down-side could be in the works

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