Wednesday, October 15, 2014

Markets could go as low as 1570 on S&P500

In terms of markets, a weekly close on the S&P 500 below 1905 was and remains my key pivot point. The S&P 500 needs to start closing above 1905 on a weekly basis this week and/or next. If this does not materialise this week then, as I said in September, I would start to get very excited, as then the door would be open to a much deeper correction. If we see consecutive weekly closes below 1905 then it would suggest to me that a very deep correction is under way.

So notwithstanding that my 1905 S&P 500 level is key, what would I do now? It seems to me that unless we get a major unexpected policy and/or sentiment shift this week, the S&P 500 will close below 1905 this Friday. I would then target 1770 as the next stop. This would lead to UST 10yr yields at or below 2% and the new iTraxx XO index would then trade well above 400bp, perhaps closer to 425bp/450bp. And if the S&P 500 also fails to regain 1905 by next Friday’s close (24 October), then I think it is entirely possible that by late November the S&P 500 could take out not just 1660/1650, but also perhaps 1600/1570.