Market Summary:
To start, I had written in the July 26 note that I would be traveling last week and would not be issuing another note until today. What a week it was!
While I hate to see such a volatile and destructive market, I am pleased to have been way out ahead of the current selloff. The portfolio has benefited greatly from this spike in volatility and index drawdown. As frustrating as July was, I pounded the table and my model held up. On July 16 as the SPX was hitting all-time highs, I wrote that my internal momentum/trend model (MOTR) was showing underlying weakness and negative divergence. On July 16 I wrote “I am growing more confident each day that the model will shift to outright negative in the coming sessions and that support levels below will be tested in the near term”. Since writing that note the SPX has faded ~6.50% (holds the 100dma) hitting every single one of my previously identified downside targets of 5562, 5589, 5500, 5400, 5350 and 5300. You can look back at all archived reports (www.islandcapitalinvestments.com) to see these levels and reasoning for each. It is well worth noting that I spent my overnight trading the S&P 500 e-mini futures as Asia and Europe opened.
The S&P 500 futures were down as much as an additional 3.2% and are still bouncing along the lows as of the writing of this note. Obviously, with this overnight drawdown we would expect the SPX to gap down on the open somewhere around 3%. So where to from here? Well, while a bounce may occur, I don’t see any reason to think it would be of any great magnitude nor long lasting enough to fall in love with. My MOTR model remains solidly negative (as is has been since July 18) with downside targets of 5000 (200dma) and 4840 (38.2% retracement for the entire trough-to-peak move Oct 2022 to Jul 2024).
Keep in mind that the index has run over 60% since the Oct 2022 low. The 4840 level would represent a retracement of just about 15%. It’s more than reasonable under the current set up. I would clearly remain cautious here and would fade any rally we may see.
Trade Support:
5000: 200dma
4840: 38.2% Retracement (Oct 2022 low to Jul 2024 high)
Trade Resistance:
5400: Low/Base of the June 12 Gap
5449: 50dma
5497: 10dma
5500: June 20 high and Jul 19 low
5669: Jul 15 high
