EB Daily Market Report - Special Update - Friday, October 20, 2023

I want to provide some clarity regarding my short-term and long-term position on the S&P 500. I've received numerous questions about the stock market selling off and how that's changed, or IF that's changed, my longer-term view. It hasn't changed it at all. ZERO. NOT ONE BIT.

I don't know how to make that any clearer.

I've been asked whether I should update everyone on my 2023 forecast. Why? The stock market has tracked my January forecast quite closely. The summer strength was stronger than I thought and the subsequent selling was heavier than I thought, but we're almost EXACTLY where I thought we'd be at this point.

Let me give you a quick refresher on the S&P 500 chart that I provided back on January 8, 2023 at our MarketVision 2023 event:

I always end these annual MarketVision events with a roadmap of how I expect the action to unfold and I've been fairly accurate for 4 years now. The above shows the channel we've been in since 2009 and I drew black lines to show how I believed the S&P 500 would trend throughout 2023. I expected a very strong January and an S&P 500 that would hit 4050 (we rallied strongly and finished January at 4076) followed by a February/March correction back down to 3800 (March 13th low was 3808.86). I then expected a strong advance during Q2 before peaking in July near 4200 (the rally was actually much stronger as the S&P 500 hit 4600, but it did peak in July as expected). From there, I thought we'd have a bit of selling during the balance of Q3 down to 4100 (our low at the very beginning of October was 4208), followed by a major surge in Q4 to 4700 by year end (we'll all have to wait to see how accurate this forecast is).

Here's the actual S&P 500 chart with my projected black lines overlaid:

I use my own proprietary research to make these forecasts. They're sprinkled with a ton of perspective and common sense, along with a healthy dose of seasonality. Sentiment is a HUGE factor as well.

Yes, the stock market is under a lot of pressure right now. Most of it occurred during the historically-weak period from mid-July through late-September. If October ended right now, it would be only a slightly negative month.

From a shorter-term perspective, things get dicey. We might still see the 4100s on the S&P 500 as next week is, historically-speaking, the worst week of the entire calendar year. That historical bearishness ends next Friday and is followed by the absolute BEST 9-consecutive-day period of the entire year (October 27th close through November 5th close). November is a very strong month historically and I believe November 2023 will follow suit beautifully.

We have to get through the next week, however. The Volatility Index ($VIX) is at 20.90 and readings above 20 can lead to rapid selloffs as I've been saying for weeks, if not months. We also have October monthly options expiring today and the week after options expiration can produce nasty hangovers. On Tuesday at our monthly Max Pain event (and the Friday before with our Max Pain Report), we discussed 11 stocks that could definitely see selling pressure this week and into next. All 11 are down, led by huge declines in Tesla (TSLA, -15.32%), NVIDIA Corp (NVDA, -8.72%), and Booking Holdings (BKNG, -6.72%). These are short-term issues that are impacting stock prices right now.

Capitulation often times mark bottoms in highly volatile periods, so that's what I'm looking for. I have seen no signs of it yet and with the Russell 2000 (IWM) possibly closing beneath a key support level at 167.50, we could see lower prices ahead before things get better.

So please let me clarify. I am VERY CAUTIOUS currently. The selling pressure is building and there is no sign of capitulation just yet. Max pain is playing a role and, again, next week is THE WORST calendar week of the year. This is all SHORT-TERM in nature. I remain VERY BULLISH into year end and the foreseeable future.

I call it as I see it, whether bullish or bearish. I try to remain objective. Could conditions worsen? Yes. Might I change my long-term forecast at some point? Yes.

I honestly do not see current bearish market conditions morphing into a secular bear market. I hope this helps provide everyone a bit more clarity of where I stand on the market.

Happy trading!

Tom