(With apologies to the late Robin Williams!)
Buyers of over-priced equity markets have taken an extended vacation in the New Year (so far) as this morning finds plenty more sellers than buyers in the overnight session.
The Shanghai Composite is lower by 7%.
The S&P 500 is expected to open over 40 points lower than where it closed last evening.
After failing to make new highs in the August to November up-move and not getting the much hoped for "Santa Clause" rally into year end, traders are less positive as we start the new year.
Selling pressure will now look to test buying support at lower levels: key support on the daily chart comes at just below the 1900 level which links the lows of October 2014 and the lows of August / September 2015. If this support does not hold, longer term investors (who have been enticed into the market by low interest rates, chasing over-priced equity market returns) will likely start to lose hope and more selling may enter the market.
On the weekly chart, the trend line back to the beginning of the long-term trend in 2009 would be the next support at 1750.
From the peak in May at 2135 to support at 1890, the correction would be about 11.5%. At 1750, the correction would be about 18%.
We have, for a long while, been recommending a more prudent and defensive strategy (which we have been utilizing in our portfolios): over-weight cash, for better buying opportunities.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist