Key Points:
- Normal down wave of just over 7% for the S&P 500. Quick retake of 200-DMA is similar setup to December 2012. If we get a follow-through day from here, this is the most immediate bullish setup.
- If we retrace and close down 9% or more from highs, this leaves three scenarios:
- First follow-through day after that is successful. This has had a 55%+ success rate since 1971 (18 of 32 corrections).
- First follow-through day fails, but second works (new highs). This has happened in 8 of 32 corrections.
- Multiple follow-through days fail and market forms lower highs and lower lows, resulting in a bear (6 of 32 corrections).
- A follow-through day could occur as early as Friday, and we remain hopeful that the worst is over given the continuing corporate profit cycle and reasonable stock valuations but remain wary of tariff impacts and lower forward growth expectations due to the three-month –10-year yield curve inversion.
