Healthy Pullback & Unimpressive Bounce So Far
I noticed that the S&P 500 has been down four straight weeks while still in an uptrend. That doesn’t happen all that often, but it is a plain vanilla pullback in a bull market. From peak to valley on a closing basis we have seen the major indices correct:
Dow Industrials -6%
S&P 500 -8.50%
S&P 400 -8%
Russell 2000 -10%
NASDAQ 100 -12%
When we downgraded our 1-3 month market view I said I did not expect a 10% correction in the S&P 500. So far, that is right, but it may end up being 10%+ if more aftershocks come. The S&P 500 is below. The bounce from Monday’s open has been sharp and swift. While it can certainly travel farther, the minimum upside objective has been met. Again, I would be surprised if stocks soared straight back to new highs from here.
Finally, take a look at how much volatility has declined since Monday’s sensational spike at the open. From 65, the VIX is now down to almost 20 in just a week.
Unless I am totally reading the tea leaves incorrectly which is always a possibility, the bounce back rally should fail or at least pause sooner than later.
On Friday we bought EMB. We sold INPIX and some levered NDX.
