One in every of my favourite components of internet hosting a present on StockCharts TV is having the ability to interview analysts, merchants, and cash managers with all types of various backgrounds. 

Not too long ago, I used to be requested in our mailbag phase about why and the way my visitors can have very completely different takes on the markets at any given second. The truth is that regardless that all of us use the same toolkit, our backgrounds and life experiences {and professional} trajectories are all embedded someplace in our evaluation. Whether or not we prefer it or not, who we have been up till now most certainly impacts the way you’re analyzing the charts.

And typically the proof is simply, properly, cloudy. Very similar to the climate in Redmond, Washington, volatility and uncertainty are simply a part of the image. I really feel I’ve gained a lot over my profession by actively partaking these with a distinct perspective, because it’s compelled me out of my very own narrative and allowed me to contemplate different factors of view. So once I see the S&P 500 index bumping in opposition to the “final resistance stage” round 4300-4325, I can not assist however contemplate some completely different potential future paths.

So what could come subsequent for the S&P 500?

First, let’s set the stage.

If we contemplate the 2022 bear market section because the framework for a Fibonacci evaluation, we give you three necessary ranges to look at. First, the 38.2% retracement stage hits proper round 4000, which was first reached in November and preceded the drop right down to the December low round 3800. Second, the 50% stage is true round 4155, which was just about the place the February 2023 excessive ended up; notice what number of occasions we examined this stage in the course of the congestion section in April and Could!

That brings us to this week, the place we’ve now examined the 61.8% stage for the primary time for the reason that August 2022 excessive. For those who had been questioning why so many are targeted on the 4300 stage for the S&P 500, this chart ought to make it fairly clear!

Now we’ll lay out 4 potential situations for the S&P 500 over the subsequent six to eight weeks. And bear in mind the purpose of this train is threefold:

1. Contemplate all 4 potential future paths for the index, take into consideration what would trigger every situation to unfold by way of the macro drivers, and evaluation what indicators/patterns/indicators would verify the situation.
2. Determine which situation you are feeling is most certainly, and why you suppose that is the case. Do not forget to drop me a remark and let me know your vote!
3. Take into consideration every of the 4 situations would influence your present portfolio. How would you handle threat in every case? How and when would you’re taking motion to adapt to this new actuality?

Let’s begin with essentially the most optimistic situation, involving a powerful summer time push for shares.

Situation #1: The Tremendous Bullish Situation

What if the good bull market of 2023 is simply getting began? As an instance Apple does not cease, pushing to a brand new all-time excessive and even increased. The mega-cap progress commerce which has labored for many of 2023 simply retains working.

On this situation, 4300 recedes within the rearview mirror and pushes above 4600. We could even see new all-time highs for the S&P 500 index! Breadth situations enhance as just about the whole lot is pulled alongside for the journey. Onward and ever upward!

Situation #2: The Mildly Bullish Situation

What if the mega cap progress shares stay robust, however the tempo of the uptrend slows significantly? Charts like AAPL and MSFT pull again as buyers digest the beneficial properties they’ve loved in these successful shares in 2023. Worth-oriented sectors like Power and Financials could do properly on this situation, however, as a result of the management has modified away from the expansion sectors, it means restricted upside for our growth-oriented benchmarks.

On this situation, the S&P 500 does break above 4300, however doesn’t get a lot additional past that. Bulls are pissed off however nonetheless doing okay, and bears start to actually query their sanity.

Situation #3: The Mildly Bearish Situation

What if 4300 holds and this finally ends up being the highest till the autumn months? The mildly bearish situation would imply that the mega progress commerce chills out in a serious approach, and the market goes into profit-taking mode.

Maybe we discover the inflation information subsequent week is approach increased than anticipated, and the market will get a short-term draw back shock. What’s fascinating right here is the S&P 500 may go all the way in which right down to round 3800, stay above the March low, and nonetheless put in a better low. This mildly bearish situation could be a pullback throughout the context of a long-term bull section in 2023, however the subsequent couple months are just a little tough.

Situation #4: The Tremendous Bearish Situation

This is the place issues get very bushy in a short time. What if there’s a draw back shock of types, inflicting the Fed to take drastic motion that pushes threat property decrease? Buyers rotate rapidly to defensive positions, however this creates a suggestions loop of bearishness. Worry of shedding the whole lot takes maintain and buyers go right into a full-on fetal place.

Gold rips to the upside as “rocks over paper” turns into the commerce of the yr. All the recreation plan for the Fed is introduced into query and we’re left questioning what occurred to the good bull market of 2023. 3800 comes and goes and we’re speaking once more about retesting the October 2022 lows round 3500-3600.

Okay, so have you ever determined which of those 4 potential situations is most certainly based mostly in your evaluation? Head over to my YouTube channel and drop a remark together with your vote and why you see that because the most certainly consequence.

And do not forget to suppose by all the opposite situations as properly. Solely by stretching out of our consolation zones and contemplating different factors of view can we higher deal with regardless of the future may very well maintain!

RR#6,

Dave

P.S. Able to improve your funding course of? Try my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and methods ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.

The writer doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the writer and don’t in any approach signify the views or opinions of another particular person or entity.