Date: July 21, 2021

Was That It? Pullback Over?

My, my, my, what a difference a day makes. The stock market went from the world ending to partying like it’s 1999 in the span of 18 hours. Oh how I enjoyed the pundits falling over themselves espousing their bearishness on Monday and turning tail on Tuesday. In my case, as you know, I wrote about playing some defense last week. And we did with some sales and hedging. After Monday’s rout I bought a small cap index, Cathie Woods’ ARKK ETF and a few stocks. I don’t imagine any will have a long shelf life, but you never know. The trade I missed was removing a hedge on the S&P 500.

The question now is, “Was that it? Is the pullback over?”

While the reversal was impressive I am not yet ready to declare it over, even though I deployed some money. On Monday the down volume to up volume ratio was 9:1. On Tuesday, it was almost the exact opposite. The decline was too brief to really impact sentiment. Stocks do not need to blast off from here nor collapse as earnings season gets going in earnest. They could be range bound for a while; perhaps several percent lower and higher.

On Tuesday, the hardest hits indices bounced back the most with small and mid caps leading. While the bludgeoned banks and industrials snapped back hard, energy and materials did not. That’s not what bulls wanted to see.

For now, wait and see is probably the best plan, followed by selling strength and buying weakness.


Paul Schatz, President, Heritage Capital