We aren't wired to wait and be patient, we live in an era of high speed internet where the information flows in fractions of a second. However, waiting on the sidelines has its charm when the Market is plunging into the biggest day loss since June 2020.
Big names got crushed today, some of them were big retailers, like Target (TGT) -24.93% and Walmart (WMT) an additional -6.79% after yesterday's crash when the profit forecast was lowered. From the 68 Industries that compose the Global Classification Standard (GICS), not a single one of them ended in positive territory.
We are all wondering what's next... and here are my thoughts about the subject. The first part is review how bad the damage is in terms of the Correction. The indexes in yellow are the ones in confirmed Bear Market territory (20% loss or more from the previous high). The main indexes recovered some of the losses after the rally that started on May/13. Now, the Correction resumed with force and three more indexes are close to enter officially into a Bear Market.
I had mentioned in my previous articles, that a realistic goal for the rally was to reach a level of 4,200 in the S&P 500 index. I underestimated the selling pressure when I saw the New High and New Lows numbers (NH-NL). My reasoning was that usually when the daily chart of the S&P 500 reached oversold levels in recent history (-3 Keltner Channel or below) there was at least a reaction rally (green dotted arrows) that took the index at least to the 30-day EMA (blue line) before a pullback happened (red dotted arrows).
It will be interesting to see if tomorrow the Correction continues and how the NH-NL indicator changes. Right now, the selling pressure isn't as extreme as last week based on the indicator. Unfortunately, the price action isn't confirming yet the improvement in the NH-NL numbers.
In my article of May/08, I estimated based on the monthly chart of the S&P 500 that the Correction still could resume. In the monthly chart, when the index reached overbought levels (+3 Keltner Channel or above, orange arrows in the screenshot below), eventually it declined to the -2 KC, only one time it went to -3 KC. That has been valid since the subprime mortgage crisis.
Today the -2 KC in the monthly chart is at 3,480 and the -3 KC at 3,170. Nothing guarantees that this behavior will repeat, but at least it provides some important levels to monitor.
I want to close today's article with a famous quote from Charlie Munger. No matter what the Market action is in the next few days, or even weeks, eventually a new Bull Market will start again, it always has, it can take time and discipline while waiting. As a summary, my position stands, the Correction isn't over yet as I have been saying over and over again in my articles, patience will be eventually rewarded.
The big money is not in the buying or selling, but in the waiting.
Charlie Munger
