3,840.
That's the overshoot on the S&P 500 (/ES) Futures now that 4,000 has failed. There's nothing wrong with testing it but the fact that 4,000 offered us little (or no) support is concerning, as we had hoped 4,000 might prove out as the middle of the range on the S&P but, without that, we would have to consider 4,000 to be the top of a range we have yet to explore, that bottoms out at 3,200 – 20% below the 4,000 line.
I find it very concerning that volume didn't spike as we crossed 4,000, which indicates there are no bullish buying programs that were triggered at that support – that's what gives you support. If we consider a simpler approach for Money Managers who aren't cognizant of our 5% Rule™, they would likely be looking for a 20% correction from 4,800, which is our 3,840 line so THAT is where we'd BETTER find support or we will be praying 3,200 holds!
The Nasdaq 100 (NDX) is 30% off its high of 16,500 at 11,550 but I'd call 11,500 that support line and the Nasdaq topped out a bit higher than 16,500 – but it as an overshoot so we're ignoring it. We hoped yesterday would be enough and we cashed out a couple of our hedges (partially) but we'll have to put them right back on into the weekend if there's no sign of a bottom here.
We're a little brave because I'm seeing a lot of stocks that are getting interesting at this point (see yesterday's list) and, whether they sell off further or not, they are still worth buying at this point. As I said at the start of the week, we are suffering from a lack of catalysts to turn the market around and, sheeple that they are, the TV pundits have suddenly gone negative so now it's non-stop doom and gloom in the Financial Media. With Bitcoin at $28,000, there's a lot of focus on that and what it means but PSW Members know it means NOTHING! because it's a meaningless made-up currency – just another meme that's blowing up but nothing that reflects on the actual markets.
I don't have any good news for you: There's still a War, there's still Inflation, there's still Supply Chain disruptions, there's still Global Warming, Crumbling Infrastructure, Labor Shortages, Covid, Rising Interest Rates and an Election, which did not used to be something to be feared but the last one almost ended in the overthrow of the US Government – so I'd have to say we should at least use caution as we get closer to November.
On the other hand, what could be worse? At this point aliens would have to invade and, even then, it would only cut us a little short of when we were going to destroy the planet ourselves, anyway. So I'm looking at earnings in that context and we have to respect the companies who can deal with ALL THIS and still make money. Imagine what they could do without the chains of Marley around their necks!
So BitCoin is trash, TSLA is overvalued BS, as are many, many over-hyped stocks but AAPL, who sold off 5% yesterday, makes $100,000,000,000 per year so $2.5Tn is not such a crazy valuation for them at $146.50. Historically, AAPL has been undervalued at 15x earnings so they could potentially fall 40% in a real panic, which is why we haven't been adding them yet. Our Stock of the Year, IBM, on the other hand is still at $130 despite the sell-off that hit everything else and that's because $130 is $116Bn in market cap and IBM makes $9Bn a year so it's trading at just 13x earnings. We knew it was going to be a rough year, so our Stock of the Year had to be rock-solid and our Trade of the Year didn't rely on IBM going up – simply not going down (from $120) will pay us in full.
This is all very much like the death of the DotCom companies in 2000 – there was plenty of trash in the market but it dragged the good stocks down with them, so there were plenty of bargains to be had against the carnage. Wells Fargo is downgrading F and GM this morning – as if they will never fix the supply chain and people will stop buying cars. Whether gas or electic or flying – people will need transportation, right? TSLA has been given endless amounts of money and it's taken them a decade to build 1M cars worth of manufacturing – F, GM and TM (who I mentioned yesterday) can produce 10M cars a year AND SELL THEM. Yet TSLA is valued more than all 3 of them. Just because people are selling TSLA doesn't mean F, GM and TM are bad stocks.
Logic, unfortunately, will not stop your stocks from going lower but it should stop you from panicking out of perfectly good positions. We have plenty of hedges to ride out a downturn – all the way to 3,200 on the S&P – let's hope it doesn't come to that….
