The S&P 500 (SPY) is starting to test key support levels for the first time since November 2023, given continued signs that Fed rate cuts will be pushed further into the future. This raises the question, “how low could stocks go?” Steve Reitmeister, a 44-year investing veteran, does his best to answer this question, including a trading plan and top picks for staying ahead of the market. He continues reading below for the full story.
Anyone who knows me personally would question my career choice. This is because I highly value rationality and fairness. Yet the stock market, which is the epicenter of my daily activities, is highly irrational and unfair.
For the past 44 years I have come to expect the unexpected which makes it easier to deal with bouts of volatility and madness.
This opens up an interesting discussion today to talk about what the reasonable path for the stock market will be from here on out. And then what is possible (which could deviate significantly from the reasonable path). And yes, along with this I will share a trading plan to stay on the right side of the action.
Comment on the market
Plain and simple, stock prices have outpaced fundamentals. High inflation is not yet fully tamed and therefore the economic catalyst for lower rates is being pushed further into the future.
Now there is discussion whether the first cut will take place in July or September (and perhaps even later). Given that rates would still be quite high and restrictive for the economy at that level, then the economic benefit of all this seems more like a 2025 deal.
This means that stock prices are valued a little too highly here in 2024, leading to an appropriate round of profit taking. This means the reasonable answer is for stocks to retrace some of the recent steps which brings us to the S&P 500 (SPY) chart below.
Moving averages: 50 day (yellow), 100 day (orange), 200 day (red)
We just dropped below the 50 day moving average for the first time since early November. This brings the 100-day moving average to 4,921.
However, that bar is rising quite a bit. It will soon join the psychologically important threshold of 5,000 to provide ample support to the market.
This means that the reasonable and rational move for this market is to give back about 5% from the recent highs of 5,265 to find a low around 5,000.
Unfortunately, as explained in the introduction… the market is very often not rational at all. This means that we need to consider the possibility of a test of the 200 day moving average.
I see virtually no chance of getting up to the current local value of 4,666. However, considering its current slope will take it to around 4,800 by the end of May. So that test is a possibility down the road. Especially in light of the new bad news on the inflation front which further delays the first rate cut.
Furthermore, since the market spectrum is not logical, this period of decline may soon end with a return to recent highs. This may be because investors are working on the premise of what lies ahead… not what is happening now.
Therefore, knowing that rates will be cut at some point, investors may continue to rev their engines at this red light knowing that it will soon turn green.
This means that after this modest and long overdue pullback, some excess will have been removed allowing investors to patiently play a trading range between 5,000 and 5,265 waiting for the rate cut signal to push higher.
Exchange plan
This is still a bull market. Just one that was a little overextended and ripe for the pullback that’s happening now.
I see downside risk to the S&P 500 of about 250 points (5%) at 4,800 versus upside to my target of 5,500 by the end of the year (10% upside). The best reward of risk is that you continue to be fully invested right now. Just a slightly more conservative mix of stocks to weather any impending storm (and yes, these moves were already quite beneficial in April in the midst of this pullback).
Investors should continue to pay more attention to value than growth. The 18% loss this year for growth poster child, ARK Innovation Fund (ARKK), is a perfect example of what I’m talking about avoiding now.
Gladly the 31 value factors calculated in our exclusive POWR rating system will help you ensure you have a value bias right now.
Beyond that, investors will be very focused on the quality of the earnings reports that start arriving in earnest in the coming weeks.
The companies that beat will be rewarded.
The companies that are missing will be crushed.
Fortunately, the addition of 13 growth factors and 31 fundamental quality factors into the POWR Ratings also represents a proven statistical advantage for finding companies most likely to beat earnings and enjoy stock price outperformance.
Long story short, now is a critical time to focus on the best POWR-rated stocks. To see my favorite picks, continue reading below…
What to do next?
Check out my current 12-stock portfolio filled to the brim with the outperformance advantages found in our unique POWR Ratings model. (Nearly 4 times better than the S&P 500 Index dating back to 1999)
This includes 5 recently added hidden small caps with huge upside potential.
I also have 1 specialty ETF that is incredibly well positioned to outperform the market in the weeks and months ahead.
This is all based on my 44 years of investing experience watching bull markets… bear markets… and everything in between.
If you’re curious to learn more and want to see these 13 hand-picked lucky trades, click the link below to get started right away.
Steve Reitmeister’s Trading Plan and Top Picks >
Wishing you a world of successful investing!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO of StockNews.com and editor of Reitmeister Total Return
On Tuesday afternoon, SPY shares traded at $503.53 per share, down $0.92 (-0.18%). Year to date, SPY has gained 6.27%, compared to a % gain in the benchmark S&P 500 index over the same period.
About the author: Steve Reitmeister
Steve is better known to StockNews audiences as “Reity.” He is not only the CEO of the company, but also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Find out more about Reity’s background, along with links to her most recent articles and headline picks.
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