I just wanted to post a quick weekend update now that the market went ahead and did exactly what we didn’t want it to — crash below the key 1114 level for the S&P 500.

In Friday morning’s market update, I talked about how the S&P was likely to test support at its 50-day moving average — around 1114 as of that writing. Sure enough, the market opened mixed and flirted around that level for most of the day — until later in the afternoon when it fell hard, seemingly out of nowhere. The economic fundamentals were decidedly bearish last week thanks to poor bank performance, despite the fact that good earning numbers were solid for most other industries. Still, I’d hoped that we’d see stocks hit the brakes around 1114.

So, what’s the verdict now? Let’s take a look at a chart…

There was no question going into Friday that stocks were getting overbought — we needed a cooldown in momentum to sustain any kind of rally. The best case scenario would have been a few point-lower close on Friday right at the 50-day (thin blue line in the chart above), followed by a week or two of sideways movement. Instead, we saw shares tumble hard on Friday right down to uptrending support (dashed blue line).

Luckily for us right now we’ve got a meaningful support level right at 1080 and full stochastics (a measure of momentum) is showing the market not far from being oversold. Those are both good indicators that we’re not headed significantly lower this month. To be sure, the fact that we broke through 1114 so fast isn’t fun, but like quickly ripping off an old band-aid, at least it means that the worst is likely over for now.

And with the worst of the financial stocks’ earnings releases behind us, better numbers next week could fuel price stabilization.

So, all of that said, what does it all mean for new Rhino Stock positions? Obviously we won’t see that bounce off of the 50-day that would send a “buy” signal, so instead, we’re going to have to wait for some sort of definitive support signal. We’ve added enough to our portfolio lately to keep our stock appetites satiated for a while. We’ll stay disciplined and defensive in the mean time.

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