The overnight market broke through the minor support around 2720, and tested the 2600 region. We are officially in a bear market, and in the upper region of what I’m calling the “shallow bear market” or as one of our readers called it, “the baby bear.”
As I had stated when the S&P 500 was around 2900 in the update we published on Saturday, “what the market does around the 2600 region will be crucial.” The 2600 region has historically been a region of significance. It was the last support that broke in 2018, which soon lead to the waterfall event leading up to the December 2018 low.
If we break this region, I will be cautious and concerned that we may be headed towards the more bearish scenario. As stated in the Saturday update, these levels could suggest a termination in the 2220 – 2100 range.
As we test the crucial 2600 support, expect to see some bounces.
As a long-term investor, I always follow my discipline. For one, I set my stops at the time of entry and follow them. We have stopped out of some positions, which hit the stops we outlined on the top stocks spreadsheet.
I will update our positions in detail over the weekend with our plans for re-entry aligned with the S&P 500 levels that I am watching. The story on these stocks hasn’t changed and we will re-enter accordingly.
Also, in a drawdown of this magnitude, I tend to buy at key support levels, 2600 being one. As a long-term investor, stocks are on sale to an extent. Therefore, I will layer-in now around the 2600 baby-bear range. Probability is high that there will be a bounce and subsequent re-test of this support. We will update you on changing levels.
My plan after layering in around the 2600 region (which is likely to be tested once or twice) is to then wait for:
- More bearish levels of 2300-2100 to layer-in the rest of my positions
- Renewed uptrend at higher and safer levels. This is less likely than the first scenario of a bigger bear market but we must be ready for all scenarios.
I know Beth is working on some coverage of semiconductors over the next two to three weeks, which smart money has been favoring. We will look to add these at the more bearish level to set up a few more AI and 5G positions.
Hey Knox, thanks for staying on top of markets for us during these tumultuous times. Can we sway that the secular thesis for growth is unchanged and that we apply the same filters as we did pre COVID? Yes they’re secular trends so it’s growth delayed rather than growth extinguished, but I’m thinking this cohort will have to contend with a miss and guide down Q1 season for the first time ever. Appreciate your thots thanks!
Thank you Beth. Would you please share your discipline checklist? I am sure it is more than setting your stop at entry.