Volatility continues to be the order of the day. Yesterday the S&P500 was down 1%, briefly breaking its 50 day moving average (DMA); today it was up nearly 1%, in lighter trade.
Will the market continue to trade in a tight range near all-time highs? I have no idea, but history tells me at some point it will either breakup or breakdown. With the market at 17 times future earnings (PE) and a general deceleration of corporate profits, I’m assuming in the near term it’s more likely to breakdown.
With seasonal summer doldrums approaching and help from an over-hyped crisis (perhaps a Greece default/Euro-exit or Middle East violence) the long awaited market correction might occur. Which in my opinion could be an excellent buying opportunity.
The S&P500 is narrowly 4% above its 200dma (see chart- orange horizontal line). Given normal market volatility, a breakdown to the 200dma is easily within the realm of possibilities. The last time the S&P500 broke its 200dma (Oct 2014), it dipped 9.8% below its high and 4.4% below the 200dma. Assuming a slightly deeper drop (11.7% from recent highs), that would place the S&P500 at a more value oriented 15 PE (near 1880- the green horizontal line).
I would consider the S&P500 a much better value at 1880 than at the current 2123. We’ll have to wait and see if my patience is rewarded.
Listen to the Wealthsteading Podcast to receive updated market commentary:
Subscribe to the Wealthsteading Podcast:
via STITCHER: http://www.stitcher.com/s?fid=53115&refid=stpr
Building Wealth, Investing, Retirement, Stock Trading, Freedom, Liberty, Life, History