Today is the first trading day of March! Last month was a wild one so let me tell you what I think we can expect for March.
First of all we saw the DOW fall 10% in early February and even fall 1,000 points in a single day.
That drop woke people up for about 72 hours and I already talked about why I thought that the stock market really dropped already so I’m not going to do that again today.
One thing though is that stock market investors are basically more bullish than ever. Of course we alreay saw the Investors Intelligence survey hit a historic extreme in regards to bullishness and there are still almost no bears in the market even after the recent drop.
We now know that on the day of the drop individual traders were buying and not selling and that buying continued as the market put in a low and rallied.
In fact this Monday saw the second biggest daily inflow in the QQQ ETF in history and in SPY it was the third biggest inflow day for it ever!
And then of course just as everyone buys the market took a dump yesterday with the DOW falling over 300 points and the S&P 500 for over 30.
So what is next?
Well in my view the stock market is likely to pause and go sideways for most of March to setup a big move later.
Take a look at this chart.
The current major support level on the S&P 500 is the 50% retracement point of the whole rally, which is now at 2,662.
Robots will buy there if the market falls more from here!
Most likely that level will define the support of the next few weeks.
That might sound silly to you if you don’t use charts, but no one invests using valuations anymore and this is a market where buying pressure mainly comes from buybacks, trading robots, and small investors simply buying whatever goes up the most.
Ironically if the market were to just fall hard now and go right on through it and down to the February lows next week that would actually be more bullish for the stock market in the long-run.
Well that would bring more fear into the market (which is totally missing now) and set the market up for a base building process much like it saw in 2010 and 2011.
In fact if it fell right now down towards the lows I’m pretty confident you’d see a double bottom as the VIX would spike fast up over 30 and maybe even 40.
What this means is that my immediate outlook for the stock market is not that bearish.
However, if the market does not fall to those lows soon and instead simply holds support and drifts for the next few weeks then it will be setup in situation in which it will end making a very big move that will be meaningful and lasting.
If we drift I’ll be watching several indicators with the private Power Investor members to get a handle on which way things will go, because if it is going to break down later like that it will be a disaster.
But I just want you to know that there is no immediate reason to think that the stock market is going to go through the February lows now and crash.
You can think of the situation now as a yellow light.
I don’t think the market is going to fall to the lows next week, but if it does DO NOT panic and instead look to buy.
That’s my outlook on the current stock market situation.
You can put my favorite buying pattern into action by grabbing my new book The Two Fold Formula.
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