If you have been reading these commentary pages over the last week or two then you probably know the deal. I don't want to get too into the weeds as I have been because right now I'm in the camp that the market is trying to create a low. It could be a short-term low, or something more serious, but the indices look ready for some relief. That doesn't mean there won't be another capitulation like sell-off, but we'll take a look at the 2018 chart of the S&P 500 and you'll see that we're just waiting for the consolidation to reconcile.
As for seasonality, this week has a below average bias, but next week gets better.
The S&P 500 / C-fund for 2018 shows a handful of meaningful lows. The "V" bottom in February took the perma-bulls by surprise and set up a big rebound that later came back to test the lows. But it's the other three lows that we have been watching with the consolidations that occur while forming the low. That seems to be what we are in right now and it is just going to take time to resolve itself.
The red arrows above indicate the lows during the forming of the bottoms, but notice in the first three that the one spike lower in each is not at the beginning of the consolidation, but rather in the middle or toward the end. So, the spike lower earlier this month could be the low, it felt like a capitulation, but it came early and we may need another day like that before this is over.
If it does happen again it will not be fun if you are in stocks, but like I said the low earlier this month may have been it. That may have already been the punctuation on this leg down, but I won't be surprised if there's one more.
Sure, we could be starting a bear market, but relief rallies are part of the process, even in a bear market.
OK, let's quickly go through the other fund charts and make this quick today, otherwise I may find a reason to go against what I feel is the simplest outlook. I have outsmarted my self before by over analyzing.
The DWCPF (S-fund) is very close to testing its recent lows. Typical behavior. The question is whether it needs another washout sell-off with an intraday reversal in order to create a bottom.
The Dow Transportation Index is also testing recent lows. It had a nice reversal day going yesterday before some late selling took it off the highs.
The EAFE Index also touched the early October lows and held. Precarious, yes. This one is a little more vulnerable because of the weakness overseas, but none the less probably oversold.
AGG (bonds / F-fund) is also heading down again looking at the early October lows. This is a bad looking chart but we've known this for a while since bond yields and interest rates are trending higher.
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