The S&P 500 has been on a stellar rally this year, rewarding long-term investors who bought and held through market turbulence. However, the current technical and macroeconomic setup suggests a possible correction could be on the horizon. Here’s how to approach it strategically.
️ Technical Analysis from the Chart:
1️⃣ **Resistance Zone (6025-6050):**
– The index is facing strong resistance in this red zone, indicating a potential **stall in bullish momentum**. Failure to break through this level increases the likelihood of a pullback.
2️⃣ Critical Support Levels:
– **5690-5628 Zone:** First significant demand zone. A break below could trigger deeper corrections.
– **5395-5365 Zone:** Key structural support from previous accumulation.
– Long-term potential target near **4500**, aligning with historical correction structures.
3️⃣ Weekly Close Watch (5977.8):
– A **close below 5977.8** could confirm the start of a correction, likely forming a 3-to-5 wave structure typical of corrective phases.
Macro Context – Inflation and Valuations:
– Inflation Data:
– In **March 2020**, inflation was at **1.5%**, and stimulus packages helped buoy the market.
– By **March 2021**, inflation climbed to **2.6%**, reflecting economic recovery and stimulus impacts.
– November 2024 inflation** sits at **2.7%**, signaling a moderating trend but with base effects and monetary policies still in play.
– Market Valuations:
– The **Buffett Indicator** (Market Cap to GDP ratio) shows the market remains significantly overvalued. This aligns with Warren Buffett’s recent positioning, where **25% of his portfolio is in cash**, waiting for better buying opportunities.
Trade Idea:
Prepare for the Correction:
– A correction to the **4500 level** would represent a compelling buying opportunity for long-term investors.
– Avoid shorting the market; instead, focus on cash preservation and building a watchlist of fundamentally strong companies.
Long-Term Strategy:
– Stick to Warren Buffett’s principle: **”Be greedy when others are fearful.”**
– Utilize cash reserves to capitalize on discounted prices during market panic.
Key Levels to Watch:
– Resistance: **6025-6050
– Supports: **5690-5628**, **5395-5365**, and long-term 4500.
Optimistic Outlook:
Corrections are **opportunities, not threats**. They allow investors to buy quality assets at a discount and position themselves for the next bull cycle.
“Price is what you pay; value is what you get.” – Warren Buffett
Let volatility work in your favor!