Keith Richards, president and chief portfolio manager, ValueTrend Wealth Management

FOCUS: Technical analysis 

MARKET OUTLOOK:

Last month on BNN Bloomberg, I noted that we were bearish and holding nearly 30 per cent cash in our equity models. We did get a sell-off, so our risk and reward metrics once again proved accurate. This call allowed our equity platforms to substantially reduce risk over recent market volatility.

We just posted the new reading of ValueTrend’s risk and reward model, known as the “Bear-o-meter.” It continues to read “caution.”

One factor in the meter compares the S&P 500 to its 200-day moving average. When the market is below its 200-day moving average, the Bear-o-meter loses two points (of eight potential points). The lower the score, the more risky the market. Right now, the Bear-o-meter sits at two, which is in the high-risk zone. The S&P 500, as I type this, is very close to its 200-day moving average. That line also lies at the 4,200 technical support level. This is the technical target I have noted on every one of my BNN Bloomberg appearances since July. And here we are, testing 4,200.

The important thing to watch now is for the S&P 500 to hold above that important 4,200 level. If it holds, we’ve likely seen the worst of the recent sell-off. If it breaks, I’d target 3,800 on the S&P 500. Keep in mind that a quick spike below that level may occur without severe consequences. But if the S&P 500 stays below 4,200 for more than a week, our risk and reward Bear-o-meter model will move to a rare zero score. The last time it did that was in early April 2022. Recall that the market then fell another 20 per cent from that exact point.

We’re not there yet. But if there’s ever a time to keep your eyes on the ball, this is it, folks.

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