Most stock market technicians are expecting a large capitulation in the index funds before the bear market is over and they begin an uptrend for the next bull market. They say this because in the stock market history very much does repeat itself. So they’re usually assessing what has happened previously.
Since the stock market is a “free market” there are no investigations as to what is actually happening, but it’s commonly understood that it’s controlled by the institutions. And the more trends that occur, the more the institutions can read and profit from them. So there is a financial incentive for history to repeat itself.
If there is going to be one final capitulation phase in the market, it’s going to come sometime soon. But I assumed that we were in an uptrend. In the very short term, however, it is all but confirmed that we are in a downtrend. And it is likely to continue until the major index funds such as the SPY and the ES sell off to their previous support levels, which isn’t far away now. The previous level of support for the SPY is between 3743.00 and 3641.00. The SPY’s current price is 3777.50. Once we get to the last level of support, the index funds are either going to rise considerably if there is enough buying or continue to sell off to the downside.
If the index funds continue to sell off past this last level of support, we could be in for some big declines since it has just broken what was the last level of support and we haven’t seen any other support levels during this bear market; it will officially become new lows for the year. If we do reach new lows, that makes trading very tricky because you just don’t know how low it’s going to go. Some people such as Michael Burry think that the index funds could sell off another 40% or more from current levels. I think the market could sell off another 20% where it is likely to find signifigant support at the same level before the Covid-19 pandemic hit. But we will have to wait and see how bad earnings are for companies that make up those index funds. The more you think companies are about to suffer, the more you think the stock market could decline.
So, it’s a risky time to be in the market at the moment. And that risk only increased the more the index funds continue to sell off during this current downtrend. If you are an equities investor, you want to keep watching the market daily as any honest predictions are going to be subject to change.
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