I spend a lot of time and energy trying to spot potential downturns. I think the average buy-and-hold investor needs to know when downside risk is elevated and when events occur that could trigger a substantial drop. Even when things are apparently going well, I always post support levels just in case. While there’s a cost to missing the best rallies, there’s also a cost to getting caught in the biggest plunges.
Traders, of course, see big downside plunges as potential opportunities. Whether they short the market or merely step aside, turning points are vitally important to their success. This leads us to the current setup.
Stocks broke out of a falling channel two months ago when Trump held a big press conference in the Oval Office to announce the Phase One deal (it wasn’t) with China [see: Melting Up.] Since then, the market has been, well, melting up — paying little attention to overhead resistance and making higher highs seemingly every other day.
The rising red channel above ran into the top of the (less aggressively) rising purple channel on Nov 19. It wasn’t until Dec 12 that it finally punched through – a breakout which leads to 3300 by year-end. In the process, it reached our ES 3175 target well ahead of schedule.
The downside risks certainly haven’t gone away. From all appearances, though, they have been back-burnered for the remainder of 2019 – 10 more sessions. We’ll review our upside targets and see if we can spot any potential bumps in the road.
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