The recent tech led rally has been nothing but impressive. The DOW index topped on Jan 17th, 2020, finally the S&P 500 and Nasdaq topped a week later on Jan 22nd, 2020. Over the weekend, the coronavirus deaths news has been hitting the wire hard. As we are writing the blog on Sunday evening around 7 pm, the S&P 500 futures is down more than 1% as the fear spreads globally. If the market condition doesn’t change overnight and it opens below last Friday’s low on Monday morning, then we have a weekly top confirmation (daily top confirmation was done on last Friday) of a temporary top. From this top, we can reasonably expect the market to test the previous breakout line. It was resistance, now is support at 3100 level.
The correction needs to finish around February – March in order for it to resume the rally into summer. Since this is an election year, before a visible possible winner is declared, the market will be in a wait and see mode in Q3.
Please remember we are in a long secular bull market, our model is projecting the DOW to reach 65,000 in 2032. So by no means, this current top is a long term major top. In order for the DOW to invalidate the secular bull market, it has to trade below 19,000, which is a long way down from the current level.
Right now our attention is focused on the depth and length of the correction. If the market is able to penetrate 3100 with force and the correction runs after Q1, then we can expect the market to bottom in Q1 2021.
So the immediate focus is watching the support line.