S&P500: More Downside To Come

Technicals | Aug 06 2019

By Michael Gable 

Share markets have not reacted well to the rate cut by the US Federal Reserve and the increase in tariffs between China and the US. The S&P 500 Index provided us with a sell signal a couple of days ago and because of this we have an updated chart in this week's report. This means that from a risk management perspective, you don't want to be buying anything just yet. Having said that, if you read our latest strategy note which was put out last week, you will realise that there is a strong case for markets to head higher when the current weakness is over. Unfortunately, we don't know when that will be just yet and a lot of damage can still be done between now and then.   

It is also quite convenient that a moment of weakness is now occurring during reporting season. This is because we will be able to uncover better opportunities in companies that report well, and when the market stops falling, we will be able to get them at cheaper levels. So, there is a silver lining in everything. We notified our portfolio clients on Monday morning to sell "trading" stocks and dramatically increase cash levels. Even now, you still have to consider cashing in "higher beta" stocks in order to preserve capital as we head into the unknown and be ready for those better moments down the track.

Price action at the end of last week was very poor with the stock falling sharply on three consecutive days in a row, wiping out about a months’ worth of gains. We also saw the S&P 500 Index break the 50-day Weighted Moving Average. Last night was the confirmation after breaking the uptrend line that started at the December lows. We now have a high probability of downside for the next few weeks or so. There is a small chance of a bounce off support near 2800, but we would be looking for a move below that before proper support will re-emerge. 

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Fairmont Equities is a share advisory firm assisting Private Clients with the professional management of their share portfolio. We are based in the Sydney CBD but provide services to private clients across Australia. We believe that the concepts of fundamental analysis and technical analysis of stocks are not mutually exclusive. Regardless of whether you are a trader or long term investor, combining both methods is crucial to success. As a result, the unique analysis of Fairmont Equities is featured regularly in the media such as Sky News Business, CNBC, The Australian Financial Review, and the ASX newsletter. Contact us for a free trial of our research and information on our portfolio management services. 

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Fairmont Equities Australia (ACN 615 592 802) is a holder of an Australian Financial Services License (No. 494022). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms