The Week That Was
Last Friday the S&P 500 hit an all time high closing at 4232.60. A week later it is at 4173.85 but hit a lower level in the overnight Thursday morning at roughly 4020. The $64,000 question is was that the correction or is there more to come?
Personally, I track pullbacks on a day to day close. So the Wednesday close saw the S&P 500 drop 4.01% for the week. At the end of the week, the drop was only 1.39%. Meanwhile, the NASDAQ 100 fell -2.38% and the Russell 2000 lost -2.07% for the week.
The average correction from 2010 onward has been a little over 6%. Even last year post the February and March drop there were corrections of -7.12% in June, -9.60% in September and -7.48% in October. Since that October low, there have been no pullbacks of more than -5%. So guess what? We are due. But still the potential correction stopped on a dime after three hard days of selling. Maybe this is going to be a long case of waiting for Godot.
Failure to make a new high in the next week or two probably means that a test of 4000 is in order. In fact, the S&P 500 wasted a great opportunity to drop to that level and be done with the corrective action. My level to get defensive off this bounce and sell more or short is 4100. Ultimately, I would like to see a drop to 3750 in the next month or so. Then we can get on with the next up move that should take us to 4500 and maybe 5000 by the new year.
P.S. Earlier in the week we wrote that the Erlanger Big Barf Indicator was still positive at 1.65 after Monday's drop. It fell to -10.86 before recovering back to -1.76. It also crossed the signal line which means to start buying. We will keep you apprised of the EBB.