How far will the S&P 500 fall?

Prompted by a question from Hailoh on IC forum:

“Down for sure, but in what stages? Without a Lehman failure there may not be the impetus for a dramatic plunge towards the end.”

The S&P 500 is testing primary support at 1850/1870. Decline of 6-month Twiggs Momentum below zero warns of a primary down-trend. I am a great believer in chart symmetry and breach of 1870 would most likely result in a decline to 1500, the next major support level.

S&P 500 Index

This could still prove to be a false alarm — as in 1998, 2010 and 2011 — but charts like bellwether transport stock Fedex suggest otherwise.

Fedex

Also the 10% year-on-year declining profit margins for Q3 2015. A 20% year-on-year fall for Q4 2015 would confirm.

Profit Margins

7 thoughts on “How far will the S&P 500 fall?

  1. Pat Ziegler says:

    The last chart interests me the most.

    Why do corporate profits spike after a recession ends? It can’t be pent-up demand because the 1980 recession was only six months. How much demand can there be in only six months?

    Could government spending be the reason? By the time the 80 recession was known, we were in the 81 recession so the government could have easily pumped money into the economy through unemployment benefits and food stamps.

    The collapse in corporate profits after the spike suggests that whatever the cause, the effects are short-term (government spending falls dramatically after a recession ends).

    Are corporate profits that dependent on government spending?

  2. […] S&P 500 breach of primary support at 1870 confirms the Dow signal. The long tail on the latest candle indicates the continued presence of buyers (highlighted by rising 21-day Twiggs Money Flow). Expect retracement to test the new resistance level but respect is likely and follow-through below 1850 would be the final nail in the coffin. The medium-term target is 1700* but long-term, expect a test of 1500. […]

  3. Interesting to note in your top chart the TMO rolling over well in advance of the rollover we are seeing in the S&P 500. It seems the loss of momentum is shown in the TMO this time around far clearer than during the last two tops in 2000 and 2008.

    Any thoughts on this?

    P.S. love your insights – keep up the awesome work. Should be an interesting year to be studying the markets…

    • ColinTwiggs says:

      Hi Sam,
      Divergence is clearer this time because the change has been more gradual than in 2008 (2000 also gave more warning).
      It is hard to pick the early rollover at the time because Momentum tends to reverse whenever there is a large consolidation or correction. But it is only likely to follow-through below zero when there is a primary reversal.

  4. Russ Abbott says:

    FDX is more volatile than S&P 500, but you have to squint pretty hard to see FDX leading the S&P 500.

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