In the last two weeks we have warned that the market has topped in late July. We didn’t know what would be the exact fundamental reasons to cause the market move lower, but the price actions have shown plenty warnings in advance. The market has shown amazing cyclical behaviors in the face of uncertainty, which allows us to forecast the market with reasonable confidence.
As of Sunday August 25th evening, the S&P 500 futures index has taken out the August 15th low, but it bounced off the 200-day moving average. Although the overnight futures index may not reflect how the cash index will behave the next day, but it is a pretty good indicator that the market is heading down.
Technically, it is 11 weeks into the current weekly cycle. Based on the seasonal patterns, it is very common for the market to continue to go down until the seasonal low time zone, which could be sometime in October. The S&P 500 downside target could be 2600 or 2485 which is the 200-week moving average.
At this point, we still believe we are in a secular bull market. This type of correction is normal in a secular bull market. Buckle up and welcome this much needed buying opportunity down the road.