$SPY, $STUDY, Concerns over economic growth deepened Friday after
China’s August manufacturing index showed a contraction and hit the lowest
level since 2009 driving stocks into decline around the globe. We haven’t seen
a correction since 2011 as almost all pullbacks were followed by V-shape
bounces in the past several years. Now we’ve got a correction and it has scared
many investors.
How much lower can stocks go? Technically, the DJIA now sits right
above the bull market trend line drawn from the 2009 bottom. The S&P 500 is
not there yet. The support for the S&P 500 is near 1900, its summer 2014
low, followed by the 1860-1870 area near its October 2104 low. The long term
bull market trend line since the March 2009 bottom stands near 1800. There were
signs of panic near the end of trading Friday with VIX surging to the highest
level since October 2014 and greater than 90% volume to the downside. While
there are growth concerns, we have to ask ourselves whether the U.S. economy is
heading into recession. The answer is likely no. This week’s rout is likely
just a bull market correction.
That being said the Alpha Market Model remains Bearish and the
Asset Allocation recommendation has declined to 12.5% Long and 87.5% Cash.
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