Market Update: Downdraft Continues… For Now

SPX- Quarterly

Note: The Following is an excerpt from an intra-week update sent to our clients earlier today.

Market UpdateDowndraft Continues… For Now
If today’s lows hold, there is a very high likely hood that we bounce from here. If not, the downdraft will likely continue. As mentioned in earlier this week, it is time to play defense until the bulls regain control of this market. A few areas of the market are oversold and remain weak; Specifically, Nasdaq, Growth, and Biotechs. Outside of those areas the broader market looks fine. Keep in mind, Monday is the last day of the month and quarter. So this sell-off could be the beginning of something more severe (a deeper pullback) or just end of quarter profit taking in the strongest areas (Nasdaq, Growth, Biotechs were standout winners this quarter, and have fallen hard over the past week). Here are the facts.
Facts Are Facts; Mixed Tape:
The heavy selling in the aforementioned areas is note ideal and if the selling spills into other areas then expect the pullback to get deeper. Until then, the market has earned the bullish benefit of the doubt and the intermediate and long term outlook remain healthy. Stepping back, keep in mind, the S&P 500 is just building a new base below record highs to consolidate last year’s very strong move (which is bullish). As of Thursday’s open, the S&P 500 and Dow Jones Industrial Average are still above their respective 50 DMA lines. The S&P 500 is trading near 1850 and has flirted with that level almost 20 times in recent weeks. One should expect range-bound action to continue until either resistance (1884) or support (1833) break.
Keep Your Emotions In CheckBull Markets End in Euphoria, Not Fear
It is very easy to throw in the towel and get consumed with fear. At any given time one can easily point to a long list of “negatives” in the market. Come to think of it, I do not remember or know of any time in history when everyone was positive. Even during the Dot Com bubble in the late 90’s lots of people were worried about extended valuations, profits, revenues, etc. Just like every other bull market in history (present one included) eventually it will end- they all end. At that point, people can easily point to the long list of “reasons” why the market ended.
Markets Move In Cycles:
When in fact, the reality is that markets move in cycles: Up, Down and Sideways. That’s it. Every bull market has a beginning and an end. Ditto for bear markets. Furthermore, bull markets typically do not end in fear, they end in euphoria. So the fact that fear is elevated right now suggests, to me, that the bull market is still alive and well. Remember, we have not had a 10% pullback in almost two years so a decent pullback of some sort will eventually occur and should be welcomed. Until more technical damage occurs, it appears that this is just another short term pullback within a broader uptrend.