The S&P 500 index has been moving in a sharp downtrend since the middle of August. Attempts to break the current trend are still unsuccessful, and the risks of a new update of the two-year minimums are very high. And there are a number of important events to come, both at the level of individual companies and for the entire economy. It is very likely that the next 2 weeks will be crucial for the dynamics of the U.S. stock market for the rest of the year.
The new reporting season started very well: the leading Wall Street banks showed a drop in profits, but not as significant as market participants expected. Now it's time for corporations from other sectors of the economy to publish their results, and the situation there is very different. Thus, Tesla's report for the past quarter in general exceeded expectations, but worries about not achieving production targets and sales at the end of the year led to a strong drop in the stock.
In the last week of October, the largest companies will report for the quarter: Alphabet (Tuesday), Microsoft (Wednesday), Apple and Amazon (Thursday). In many ways, the movement of the entire stock market will depend on the results of these giants. The predictions of the management of these corporations for the future will be more important.
Meanwhile, the actions of these companies indicate significant problems in the current economic environment. Microsoft is cutting staff, Apple is cutting production of the iPhone 14, and Amazon is seeing a drop in customer demand for expensive goods. Negative reports and forecasts could send the S&P 500 to new minimums. And considering that there are less than 2 weeks left before the Fed tightens its policy again, the picture is quite grim.
In the conditions of general discouragement, it is better to be careful: even a small burst of optimism can sharply push the stock market up. Nevertheless, the downtrend remains leading for the S&P 500, and there is clearly not enough reason for it to reverse.
The following trading strategy option can be suggested:
Sell the S&P 500 for not higher than the 3750 level. Take profit 1 – 3600. Take profit 2 – 3500. Stop loss – 3810.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.