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S&P 500 - What is the Pain Threshold for the Fed and Traders?

How low will the bear market to go?
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$SPX chart courtesy of StockCharts.Com, annotations by Mish

$SPX chart courtesy of StockCharts.Com, annotations by Mish

$SPX S&P 500

I expect those green boxes representing unfilled gaps to easily fill.

That bottom gap would represent a 30% decline from the top. It will easily fill, in due time.

What is a Gap?

  • A gap up occurs when the market or an individual issue opens higher than the high on the previous day.
  • A gap down occurs when the market or an individual issue opens lower than the low on the previous day.

I am a big believer in the theory that most gaps fill. 

Support Lines

The blue dashed lines represent technical support lines. I expect bounces at those levels. Indeed, there was a nice bounce off that level but the market is heading back towards support.

Expect another bounce when that top gap closes.

S&P 500 3700 Level

That 3700 level came up in a recent Tweet regarding the Fed.

"Latest ⁦BankofAmerica⁩ Global Fund Manager Survey shows investors now believe Fed “put” is hovering around 3700 (for S&P 500)"

Let?!

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Key Idea

"The Fed cannot rescue markets while simultaneously trying to convince Washington that it is determined to fight inflation, slowing growth notwithstanding. In any case the pain threshold (if there is one) is much higher (lower asset values) than in Q4 '18 imho."

Speaking of let, please let this sink in: "In any case the pain threshold (if there is one) is much higher (lower asset values) than in Q4 '18 imho."

Pain Threshold Q4 2018

$SPX chart courtesy of StockCharts.Com, annotations by Mish

$SPX chart courtesy of StockCharts.Com, annotations by Mish

If IZ is correct, and I think he is, then the S&P 500 2800 level is in play and a return to the 2000 level is not at all out of the equation. 

The 2800 level would be a decline of 42%. That's the minimum decline I expect from the top. 

A decline to that level should be expected, not shocking. And it would not even make the market cheap by historical standards, just reasonably priced.

This post originated on MishTalk.Com.

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