The stock market dropped somewhat aggressively last week to reach new lows in the pullback that began July 27th. This pullback is becoming a long one, at 42 trading days old, but thus far a shallow one, with a 6.3% drop.
It will be unusual if this pullback doesn’t find a bottom in the next 2 to 3 weeks. During that time, the market could drop a few additional percentage points or more. As of Friday’s close, the S&P 500 was at 4320 and I’m looking at several support levels where the market could bottom. Support at 4232 would be a total drop of 8.1%, 4195 a drop of 8.9%, 4100 a drop of 11.0%, and 4050 a drop of 12.1%. The market could bottom at any price point but support levels allow us to see where the higher probability areas are.
The further the stock market drops the better the buying opportunity, as new investments are purchased at lower prices. Investing extra cash at these levels allows you to benefit from a probable rally in the 4th quarter. The market rally that follows a pullback is usually strong and I believe the one following this pullback could get the market back to its all-time highs set almost 2 years ago.
Photograph by: Pablo de la Fuente on Unsplash
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