Technically Speaking – July

August 3, 2022

Technically Speaking:

Long Term Resistance: SP500 4150 then 4350

Long Term Support: SP500 3900 then 3600 – 3700

Markets had a great rebound in July moving back above the SP500 4100 level. Last month we said we thought a good rally was coming. This was strictly based on my experience that we had sold off too far too quickly. The news only talked about the FED raising interest rates and the inevitable recession. Both scenarios happened but the markets rallied off the June lows, which to the media and lay person didn’t seem right. However, to me it was the selloff that didn’t seem correct. Without a black swan event, I could not understand how the best companies in America were down 30 to 50% while the SP500 was down much less. When ALL the news is bad and the Markets quickly decline in anticipation of more bad news coming, that’s when you get the bounce. History has also told us that when the 1st half of the year sees the SP500 decline over 20% the second half of the year rallies off the lows causing disbelief to all the neophytes who sold in fear. It is all about fear and greed. It’s hard to buy when all you hear is negative news but that’s when you must dollar cost average in. Unless luck is involved, buying at the bottom, and selling at the top just doesn’t happen. However, at some point the technicals become very oversold and that is when you add to the risk portion of your portfolio.

Now that we have rallied over 10% from the bottom, it’s time to prepare to reduce your risk at some point. I believe on a technical basis the SP500 can get back to 4300 – 4400. If we rally to that area, it would be about a 20% rally. At that point it is prudent to take some action. Remember there are many ways to hedge your portfolio.  The easiest way is to raise your cash position by dollar cost averaging out of partial positions. I believe we have seen the lows for this year, I also believe we can now settle into a trading range of 3900-4000 on the downside and 4300-4400 on the upside. Obviously, things can change. However, you need a plan to at least keep you on track. With all that said, I do believe 2nd quarter through 3rd quarter 2023, we will probably see the effects of the FED raising interest rates so fast and the administration NOT dealing with the real problem, which is the supply chain!!

 

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