Was This Just a Market Pause or the Start of Severe Selling?
Today's pause in market momentum raises questions about what's next.
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After eight days of positive action, the S&P 500 finally took a rest. It was quite mild with just some minor red on the screens, but breadth was close to two-to-one negative, and the Russell 2000 was the laggard with a pullback of about 1%.
The market was overdue for some selling, but the question is whether this is just a pause that refreshes and creates conditions for more upside, or is it the start of more severe selling as we head into the very important Jackson Hole event on Friday?
Despite Tuesday's mixed action, it didn’t change technical conditions. We still have hundreds of very extended stocks that need rest and consolidation, and they will be even harder to buy if they take off again and go upside down.
A big part of the reason that the market has had this fast and furious bounce is the expectation that the Fed will cut rates and reassure the market that the economy is still quite strong. Jerome Powell will likely set the stage for a September rate cute when he speaks on Friday, but the issue is to what degree the market has already priced that in.
When the market eventually undergoes some deeper corrective action, I suspect we will hear much more about negative seasonality, which seems to have been temporarily forgotten. There isn’t much news flow out there right now, but there is nothing overtly negative to trigger a shift in market action.
It was refreshing to see a pause in the market action on Tuesday, but it really wasn’t sufficient to build a foundation for more upside.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
