Today I am looking at the broad indices. As I told listeners over 3-4 weeks ago, we were due for a pullback, but most of the economic data was still positive in the U.S. The wildcard was, and still is, Europe, with Japan a little further down the road.
In any event, we had our over 10% pullback (actually 12-14% depending upon the index), which is the definition of a “correction” or “retrenchment” as professionals like to call it. I call it going down.
However, thus far we are still in a secular bull market and I would like to see some follow through tomorrow to confirm what I think is true, before I commit more capital as I had some assets on the sidelines in cash.
It doesn’t matter what I think, it is more important what the market it telling me. Moreover, the market doesn’t care what I think, I wish it did. So I have to measure what is actually happening in the markets to determine risk.
Today, I will not be as long winded as yesterday, but all three major indices are showing resilience, and the Nasdaq is showing the most strength. It broke through a bottom trend line a few days ago but is almost back to it. It is currently bouncing off a support line with increasing buying volume on a wide array of stocks or sectors (“breadth of the market”) which is a very positive sign. Again, I want to see some follow through tomorrow.
Keep studying,
Dan Stewart CFA®
