Market at Risk of One More November Leg Down
Watch the 20-day moving average; only a strong close over 1392 can eliminate the potential for one more leg down to the 1316 areas on the S&P 500 before November comes to a close.
In the near term, we notice the market has rallied out about 45 points off the 1344 pivot lows last week to around 1390 yesterday. This retracement marks a normal 38.2% Fibonacci recovery of the most recent wave 3 decline to 1344. Typically, this is a wave 4 mini-bullish pattern as washout lows get bought and then shorts cover fueling the rally a bit higher. However, this is often when another sledgehammer comes out of left field and knocks the market down in what we would call a "Wave 5" decline to new lows on the downtrend.
Investors should watch both the 20-day moving average, which is declining and around 1392 or so, and the 1388-1392 38% Fibonacci retracement areas for resistance. Only a strong close over 1392 can eliminate the potential for one more leg down to the 1316 areas on the S&P 500 before the month of November comes to a close. With that said, we expect a rally in December for the markets and hope to see this barrier taken out soon, but would advise traders to tread with caution until such time.
Editor's Note: David Banister is the chief investment strategist and co-founder of ActiveTradingPartners.com, a small-cap portfolio and market advisory service.
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