New downside targets for S&P 500

Price at time of writing – 1781.

As with the Dow, the S&P 500 also overshot my major target of 1791 by a similar percentage.

Nonetheless, a degree of tolerance was called for in stop-loss strategy, and my recommendation on 18 November to sell the index short remains firmly intact. Today I will attempt to establish downside targets.

The S&P 500 is an index with a slightly higher beta than that of the Dow Jones. My expected fall of 12.5% on the Dow is, therefore, likely to be exceeded on the S&P. A fall of 16.66% would place the index amid a cluster of old Gann percentages, taking it down to 1541. The band itself can be defined as 1530-1554.

In my November update on the S&P 500 I warned of the tell-tale signs of an approaching high. I won’t discuss these again today, other than to mention that they have not abated. A good shake-out in equity markets is both overdue and ultimately a healthy development.

Recommendation: stay short. Target 1541. Expect some support along the way at 1695. Stop-losses can be introduced and activated on strength above 1850.

S&P 500 chart

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