The S&P 500 Has Put In A Top, It Should Be There For Some Time
$SPY
The S&P 500 index has retreated 9% from its 20 May record high of 2,134.72, and many experts do not see it returning to that mark anytime soon.
The S&P 500 is in the process of testing the capitulation low of 1875 that it marked 2 weeks ago. That action produced new 52-wk lows in 1,335 individual stocks, the biggest number since Y 2008.
The 1,875 may hold. But, we cannot rule out a deeper decline, since this is quickly becoming the developing consensus. A major top is likely to be in place for some time.
As for valuations
The S&P 500 carried a trailing price-earnings ratio of 20.35 Friday, up from 18.97 a year ago.
People think it was China’s woes and uncertainty over the timing of Fed interest rate hikes that set off the 11% drop in the S&P 500 from 17 to 25 August.
But those fundamentals alone do not fully explain the magnitude and velocity of the decline in equity markets last month.
Some of the blame is on systemic/technical investors, including risk parity funds that allocate investments between stocks, bonds and commodities, and commodity trading advisers’ funds, which invest like hedge funds.
These technical factors can push the market away from fundamentals.
But, while technical factors often drive markets for short frames, in the long term, fundamentals win. So if investing on the basis of solid research, you do not necessarily have to sell when a holding takes a sudden dive. You have to keep emotions out of the mix.
The US major market indexes closed Thursday at: DJIA +76.83 at 16330.40, NAS 100 +39.72 at 4796.25, S&P 500 +10.25 at 1957.29
- NAS 100 +1.3% YTD
- Russell 2000 -4.1% YTD
- S&P 500 -5.2% YTD
- DJIA -8.4% YTD
| HeffX-LTN Analysis for SPY: | Overall | Short | Intermediate | Long |
| Bearish (-0.35) | Bearish (-0.28) | Bearish (-0.40) | Bearish (-0.37) |
Stay tuned…
HeffX-LTN
Paul Ebeling
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