The stock market doesn’t crash when everybody is looking for it to happen.
Crashes also don’t occur when the S&P 500 is trading just 2% below its all-time high.
So if you’re worried about a huge drop in the stock market over the next few months… stop worrying. Everything is going to be alright.
The stock market is vulnerable to a decline of 5-7% over the next few weeks. We are headed into a seasonally weak period for stocks, after all. And it feels like forever since we’ve had at least a 5% pullback in the market. So a move down toward 2360 or so on the S&P 500 seems like a reasonable target between now and the end of September.
But if you’re looking for a stronger pullback than that, I just don’t see it happening – not yet, anyway.
You see, all the important moving averages for the S&P 500 are still in a bullish configuration. And history tells us that stock market crashes just don’t happen with this setup.
Take a look at this weekly chart of the S&P 500…
The last significant correction in the S&P 500 occurred back in August of 2015. That’s when the 9-week exponential moving average crossed below the 50-week moving average.
That’s a bearish cross. And stocks entered a five-month-long downtrend that knocked 6% off the S&P by the time the market bottomed in early February of 2016.
A 6% decline certainly does not qualify as a “crash.” Heck, it’s barely worth calling it a “correction.” But the point I’m trying to make here is that the “correction” occurred after the 9-week EMA and the 50-week MA had coiled together. That’s what created the setup for a bearish move.
We don’t have that potential for a bearish setup right now.
The 9-week EMA is currently more than 100 points above the 50-week MA. There’s almost no chance of seeing a “bearish cross” over the next month or two.
Best regards and good trading,
P.S. Are you prepared for a market correction, no matter how large or small? Send me your thoughts right here, along with any other questions or suggestions for the Market Minute and Delta Report.
For today’s mailbag, some kind letters from Market Minute readers and Delta Report subscribers – and one message from a fellow trader on the other side of the world…
Hey Jeff, hope all is well! I'm back in Baghdad for six months! Great thing is I'm off during trading hours and have a lot of downtime to research and read charts.
GDX was a close call, huh! Glad we ended UP on the trade.
I thank you so much for all the valuable information you share in your letters. I am a new student on this trading stuff and I look forward to your letters. I print the letters and review them every day.
I enjoy your daily analysis. Do you have a link where I can consider becoming a paid member? I looked before on what I thought was your website but could not find any information regarding that option.
Jeff’s note: Thanks for your notes, everyone. And stay safe out there, Karl.
Rudy, you can learn more about becoming a Delta Report member right here.