2013-12-06 06:03:53 - The Alpha Investment Newsletter sees 13% downside in the S&P 500 Index in the near term, which is 230 points downside from current 1800 level to 1570 level. This note is to help investors preserve their profits if they act in time.
New York, NY - Note to Investors: The S&P 500 Index has been around the critical level of 1800 for last two weeks, and based on the index price movement and volume behavior, the rally seems to be stalling and with high probability of reversal and profit-booking wave in the near term.
The Alpha Investment Newsletter sees 13% downside correction in the S&P 500 Index in the near term, which is 230 points downside from current 1800 level to 1570 level. The downside could extend further to 1480 if news flow gets particularly bad. This correction may unfold in Q1 2014 during Jan-Feb period, triggered by fresh political deadlocks in the USA, and profit booking on over-leveraged positions. There is a
chance that this correction may even start within December 2013 anticipating such problems in Jan-Feb 2014.
This note is to warn investors and help them preserve profits if they act in time. The Alpha Investment Newsletter urges investors to take great caution at current market levels, and hedge their long positions using suitable Put options.
The S&P500 has gone up from 1200 in Dec 2011 to 1800 in Dec 2013, gaining 33%, without any major correction over the last two years. This has been a strong liquidity fuelled rally. The valuation of S&P500 really does not matter at this stage. Even if S&P500 is fairly valued, such long rallies without corrections have almost always ended with sharp corrections that exceed everybody’s expectations, fears and stop losses, on the downside because two years of investors are sitting on profits, and even if a few large investors or funds decide to exit, the supply of stocks and futures will increase rapidly, setting off a race to exit the market with profits, which will cause rapid erosion of prices. Lack of periodic corrections over last 12 months has created large leveraged positions in the market, which will rapidly liquidate once S&P 500 Index moves below 1700, thereby accelerating the downside move.
- S&P500 closing price Dec 2, 2013: 1800
- Downside price target Q1 2014: 1570
- Upside price target Q1 2014: 1850
- Risk-reward not favorable with 230 points downside vs 50 points upside.
- Sell/Exit signal gets generated on closing below 1790.
- Investors should stay very cautious at current market levels, and should seriously consider protecting their long positions with suitable SPY 1700 or SPY 1800 Put Options.
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