Testy Tuesday – Will Powell Save the Day or DOOM Us All?

As I was saying last week:  

Phil: “This is a correction, not a pullback”

Back on May 5th, the day before I left for Vegas, I reminded our Members on “Federally Fueled Thursday – Don’t Get Excited!” – as we were coming off a Powell-fuled rally – that coming back to S&P 4,300 at the time – was nothing to celebrate and, in fact, we took that opportunity to press our hedges.  As I said in our Morning Report (which you should subscribe to HERE only if you want to know what the market is going to do before it does it):

As you can see from the chart, that’s half of our RECENT drop that we recovered, not half of the 20% retrace from 4,800 to 4,000.  And, I say retrace, not drop as a DROP would be 0.2 x 4,800, which is 960 points to 3,840 but, according to our 5% Rule™, 4,000 is the correct major support for the S&P and 4,800 was simply an overshoot by traders who did, in fact, get too exited.  That means the move back to 4,000 is a CORRECTION – meaing we are heading back to the correct level – it may be quite a while before we see 4,800 again.  

If 4,000 is our correct level then our correct trading range is likely to be 3,200 to 4,800 (20% either way) for years to come.  I don’t think we’ll see 3,200 unless Putin does something very naughty or Covid comes back hard because the Fed and our soon to be elected Government are very unlikely to let that happen and, since Biden has cut the Defict to $2.2Tn from $3.5Tn last year – we’ve got $1Tn left to play with for emergencies. 

That chart now looks like 

What we really care about today though is our Bounce Chart, which we discussed later that same day in…

Provided courtesy of Phil’s Stock World.