[Author’s Note: This information is meant to be entertaining and educational and does not represent a recommendation to make or change investments of any kind.]

The Standard & Poor’s 500 index (a.k.a ‘The Market’) may be on the verge of a precipitous decline of 10% or more – that according to technical analysis which in layman’s terms means  “looking at the chart.”

In the most recent chart from big charts.com, you can see the support level at just under 2600.

 If it should break down through that level the implication is that it would drop at least 10% from here.

– this is because the line acts as a fulcrum and the first stop would be a level below the line equal to the distance from the highest point above the line. So about 270 points or just over 10% from current levels (2600).

 

Technical analysis doesn’t concern itself with fundamentals or reasons that explain the drop in terms of economics or finance. Technical analysis merely looks at supply and demand factors to determine whether buyers or sellers are the more powerful group at any given time.

There are many who believe a correction would be healthy because corrections “turn over” the market holdings to a new group of investors who may represent stronger ownership. Personally, I would be concerned about a protracted selloff in the markets. All the participants in an economy look t0 the stock market for signals of future prosperity and confidence. If the market were to decline and stay down for the year, it could affect the decisions that households make with regard to spending, investing, and so forth. Of course this would apply to businesses as well. It’s called the wealth effect, and it does change economic growth. It’s been driving the markets higher for a long time already. But it does work in both directions. We should know within the next week or so whether or not the market is going to hold this important level. The market will certainly play a role in the mid-term elections and the polls regarding the composition of Congress for 2019.  The performance of the broad market indexes  would probably also affect the popularity of the president–who does not need more negative attention at present.

 

WRH