Well, the S&P 500 was down 1.43% this past week. The S&P 500 broke short term support, but it didn’t go far from it. Once it broke support from the trading range, it quickly raced down to support from the last time it broke out back in early July. The fact is that markets typically don’t go from raging bull markets to raging bear markets.
Markets typically go from directional trending to sideways, to another directional trend. Depending upon your time frame and how you are measuring, we are simply in a sideways movement without a test of the high. Furthermore, not much technical damage was done on a weekly scale from last week’s price action. The S&P 500 is not even below the last major low (only what could be considered a minor low). There is a difference. Basically, many of the ‘weak’ hands were shook out…or the investors with very tight stops.
When it comes to bear market territory, the S&P 500 is still outpacing treasuries on a 12-month rolling basis, so no bear market just yet. Market breadth is oversold to a point in which it has only hit once in the last 7 months (back in March of 2017) and twice in the last 18 months. The most recent oversold signal (March of 2017) led to a wide trading range lasting about 4 months. This sharp decrease in breadth could be a signal that we are transitioning into a larger trading range.
With regards to major economic releases, Housing Starts numbers and the FOMC Minutes are scheduled for release on Wednesday.
Friday’s price action was more neutral than bearish. Many of the US Sectors formed bull bars on Friday suggesting failure to the bears to more downside. The buy trigger would be higher prices for those sectors. The trend is still up on the longer term and down on the shorter-term (the bears were more than likely disappointed by the lack of follow through on Friday as a weak buy signal was formed). Remember, there is always a bull case and bear case. We know this and that is why position sizing and management is important. For this week we are looking at getting involved in some treasuries depending upon price action. All this makes for an interesting market!
by Adam Straseske, CMT
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