SPX, SOX downside targets:
Context: We are in a
1. secular bear since 2000
2. cyclical bull since early 2009
3. bull market correction (or possible end of cyclical bull) since early May
SPX: Fell 17% in the mid-2010 correction. That correction saw a reverse Head-and-Shoulders, 50dma below 200dma, RSI hitting 30 several times, and VIX spiking to 48. A 17% correction from recent highs would take SPX from 1371 to 1138. So far, we've bounced twice at the 200dma. However, the 200dma didn't hold in mid-2010, and fundamentals are worse now: stock prices higher, oil price higher, but macro risks at least as bad. A double-dip recession now, is at least as possible as in mid-2010.
SOX: Fell 24% in the mid-2010 correction. A 24% correction now would take us from 474 to 360.
Those are (very approximately) my downside targets: SPX 1138, SOX 360. If I decide it's just a cyclical bull market correction, I'll cover shorts, and consider going long, when we approach those levels. I'd also like to see the VIX much higher, and higher volume. If I decide it's the end of the cyclical bull, I'll wait for new secular bear lows (SPX 667, SOX 168) If I'm wrong (always a possibility), I'll maintain my current position (mostly cash, two remaining shorts), till we get at least a 10% SPX correction.
The sectors which I think are currently closest to a wash-out, with the worst sentiment (and therefore best values, and greatest LT upside potential) are solars (FSLR, YGE, TSL) and large-cap tech (INTC, CSCO, AMAT). |
