Marketview: Run of the Mill Correction

The cautious stance I’ve taken on the market over the past few weeks seems to have been warranted.  The broad indices have moved around a great deal but haven’t really gone anywhere.  I’m still bullish on the market in the long run and think we need to take out the previous all time highs before any bears are proven right in a meaningful way.  There is too much latent pessimism from the retail investor and too many M&A deals happening for a big fat bear market.  We’re gonna get frothy, just not now.

I had a gut feeling this week that the S&P would take out the April highs just to really frustrate everyone, but I guess there really weren’t enough shorts in the market to take another run at the stops.  The market is starting to look frighteningly like a repeat of 2011.

You can’t deny the similarities (although I’m sure you could argue about where the points of reference should be applied.  But don’t.  Okay?).  I can’t pretend to know where the market is headed but this feels inversely similar to a period when we were climbing the wall of worry.  Back in February I wrote:

One of the principal functions of the market is price discovery.  This market has already defied all the odds, so I doubt very much that it’s just going to tag 1360 and turn around and retreat.  No, this market wants a breath of fresh air and some clear blue sky above 1370.  Whether it gets 4 or 40 points worth of jogging room is the question everyone would like to know.

Back then I was referring to the fact that the market was very unlikely to just trade to a previous resistance point and fail.  If we use that same principle of price discovery on the downside I find it very difficult to believe that this market doesn’t want to see how many stops are resting below the 1355 area.  I feel that the probability of the market turning on a dime and rally hard starting Monday is quite low.  Where it ultimately finds support is entirely up to market participants.  At this point in time, I don’t see any major stress in the system that would derail the larger bullish trend.  In short, I think this is a run-of-the-mill pullback unless something dramatic changes.  It may be a high energy pullback, but it is normal corrective behavior after such a long bullish run.

Winners: $MRK, $ABT, $MDT, $CVS, $MO, $CL, $KO, $T

Losers: $DVN, $APA, $AAPL, $BAC, $MS, $CAT, $DOW, $EMR

Tech, materials, and energy led the losing sectors this week while defensive names held up well, particularly the utilities and consumer staples sectors.  I’ll be glued to $AAPL watching for signs of a bottom.  I’m looking for tech and financials to lead to the upside should the market push higher.


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