Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

How Far Could Stocks Fall? Probabilistic Analysis of the Stock Market’s Downside Risk

Stock-Markets / Stock Markets 2010 Nov 17, 2010 - 10:27 AM GMT

By: Chris_Ciovacco

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleWith the financial markets facing uncertainty about the balance sheets of banks and governments in Ireland, Spain, and Portugal, continued weakness in stocks, commodities, and precious metals remains a possibility. From a risk management standpoint, it is important for us to understand the possible downside risks in the short-to-intermediate-term. Since risk assets (stocks, commodities, precious metals) have been primarily driven by liquidity, their correlations have been strong since the 2010 summer lows. Therefore, the S&P 500 Index can be used as a proxy for all risk assets. If the downside risks are muted in stocks, they are also somewhat muted in commodities as well.


Due to the following factors, we continue to believe the downside risks in the stock market are manageable in the short-to-intermediate-term:

  • Quantitative Easing (QE): The Fed plans to inject freshly printed money into the economy well into 2011, which will place upward pressure on the price of stocks, commodities, and precious metals. While it is beyond the scope of this study, if you are unclear of the potential impact of quantitative easing on asset prices, you can review these QE resources.

  • Slow Economic Growth: The calls for a double-dip recession were common in the spring and summer of 2010. An objective review of the data never placed a double-dip as the high probability outcome. We will have to keep an eye on the incoming data, but it continues to support slow, but positive GDP growth. The global economy has numerous problems, but positive growth in global GDP can continue given what we know today (subject to change).

  • Technical Support: Buyers and sellers and their trading algorithms tend to have long memories. This study focuses on long and short-term levels of support, trendlines, and Fibonacci retracement levels for the S&P 500 Index. The objective is to better understand where buyers may become interested should further corrective activity unfold in risk assets.

Summary of Results

The table below summarizes the results of the S&P 500 support study. The values on the far left side of the table show where various forms of support for stocks tended to cluster. We would expect some buying interest in the S&P 500 near 1,178, 1,165, 1,156, 1,144, and 1,132. If these levels are breached, then the next areas of support clusters come in near 1,120, 1,100, 1,080, and 1,065. The level where we would expect to see the strongest conviction from buyers comes in near 1,144 on the S&P 500.

The eight charts of the S&P 500 below show how we compiled the table above. Traders and investors use various tools and examine various timeframes when making allocation decisions. Areas of potential support, or interest from buyers, are more meaningful when they appear in various timeframes and are determined using various methods. Below, we examined areas of past support and resistance on a monthly chart of the S&P 500 going back to 1997. Key levels clustered near 1,156, 1,140, and 1,100.

The weekly chart below allows us to look at a little more detail going back to 2003. Key levels tended to cluster near 1,156, 1,145, 1,142, 1,121, and 1,065.

The chart below looks at parallel trend lines on the S&P 500 from the October 2007 highs. If the current day market were to fall further, it may find support from the top pink line near 1,143.

Below, we review parallel trendlines from the October 2002 lows. Notice how markets tend to have long memories relative to parallel trends. Possible support from the top blue line comes in near 1,178; the next line would come into play somewhere near 1,145.

The chart below looks at the trendlines from the March 2009 lows. It appears as if the S&P 500 would intersect with the lower blue trendline somewhere in the neighborhood of 1,145.

This chart (below) looks at a much shorter-term view. The green lines are parallel trendlines from the July 2010 lows. The pink lines are parallel trendlines connecting the April and November 2010 highs. Moving averages for the S&P 500 are shown via the blue, red, and green thin lines. This chart has two major zones of potential support highlighted in green and yellow. A break of the lower green trendline would be a cause for concern (currently near 1,080).

Traders often watch Fibonacci retracement levels; so it pays to keep these in your back pocket. The basic concept is all markets have natural ebb and flow where “giving back” some gains is a normal part of any healthy market. Retracements bring new buying interest and allow markets to move higher. The chart below shows the retracement levels for the gains made from the summer low to the recent fall 2010 high.

Below, are the levels using the more recent September 2010 low matched with the most recent high in the S&P 500.

The summary table at the top of this page aggregates the areas of possible support garnered from various timeframes and various methods. In the short-to-intermediate term, the key levels where buyers may become interested in risk assets correspond to S&P 500 levels of 1,156, 1,144, and 1,132. Trendlines, support, and retracements levels are violated commonly in all markets, which speak to the probabilistic nature of this analysis. A break of 1,144 on the S&P 500, especially on a weekly closing basis, would increase the odds that any pullback may be more than a normal correction within a healthy market. Developments in Europe and new fundamental data need to be factored into all investment decisions, and should be used in conjunction with possible areas of buying support.

By Chris Ciovacco
Ciovacco Capital Management

    Copyright (C) 2009 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

Chris Ciovacco Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules