Jeff Clark's Market Minute

The Stock Market Is Still in the Battle Zone

The stock market dodged a bullet in August. It may not be quite so lucky in September.

Let me explain…

For the month of August, the S&P 500 lost almost 2%. That’s not good. But, it’s nowhere near as bad as it looked a week ago, and nowhere near as bad as it could have been. If the market had broken to the downside of its recent trading range – which it looked close to doing so last week – the target for the S&P 500 would have been around 2750.

That’s not a disaster. It’s a drop of only about 9% from the all-time high reached in July. It would have been painful, for sure. But most folks could probably handle it.

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What is much more difficult to handle would have been the bearish setup that sort of move would have created on the long-term chart.

Take a look at this monthly chart of the S&P 500 plotted along with its 20-month exponential moving average (EMA)

Longtime readers know I use this chart to determine the long-term trend of the broad stock market. If the S&P 500 is trading above its 20-month EMA, then we’re in a bull market. If the index is below the line, then the bear is in charge.

If the S&P 500 had declined to the lower target of about 2750, then it would have closed the month of August below its 20-month EMA. And that would have called into question the viability of the long-term bull market.

So, like I said… the market dodged a bullet.

But it’s still in the battle zone. It won’t take much of a decline in September to shift the longer-term trend to bearish. And, with the significant negative divergence on momentum indicators like the MACD and RSI, the next decline phase could be a BIG one.

For now, though, we can all breathe a collective sigh of relief. The market didn’t fall apart in August. And the short-term pattern looks more bullish than bearish. But, traders should keep a watchful eye on this long-term chart of the S&P as we get through September. It could be setting us up for a scary October.

Best regards and good trading,

Jeff Clark

P.S. While there’s the potential for a scary October, I’m not worried… It’s a trader’s market right now. That’s because no matter which way the market moves, traders can make a fortune – especially if they use my strategy.

It’s the strategy I use in Jeff Clark Trader. I handpick just three stocks to trade – over and over again – to help you fund a comfortable retirement. And these three stocks are the best ways to make money off this volatile market… no matter how much experience you have with trading options.

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