What if This is Not Bottom?
After support was broken at 1950, the next important level was 1900 according to most technicians. That level was tested twice on Monday from which shares did bounce higher into a slightly positive finish at 1923.
If 1900 is not bottom, then the next logical support level is 1870, which marked the lows found in late August and once again in late September. That second test proved to be strong support followed by a 13% rally all the way up to 2116.
If stocks cut through 1870 like butter, then it will likely pay for everyone to get more defensive. That is because panic could truly start to set in, which can bring about a whole host of negative consequences on the fundamental side of the ledger.
I am referring to how business executives are part of the investor class. If their fears from stock market losses leaks over into more risk averse business decisions, then what was nothing more than a technical stock problem could become a fundamental one. Meaning that what I describe above is often the chain reaction that can lead to a recession and bear market.
I know that sounds ominous. But remember how many nasty corrections we have endured during this 7 year bull market that did NOT create the negative domino effect noted above. So do not assume that will happen now. I am simply opening your mind to the possibility of why it could be prudent to get more defensive under 1870. Hopefully we find a lasting bounce before we get there.
Best,
