The media is falling all over itself calling a top, after the first decent pullback since the November election. That’s great, because we all know CNBC is famous for getting it wrong. Consider using the media as a contrarian indicator; when they are bearish, chances are they will scare mom and pop, which in turn produces a lot more buyers once the markets reverse. Interesting to note CNBC called an intraday low, around 2:00PM Tuesday evening. We closed at the low of the day.
Where are we headed? Let’s consider some data points.
- The S&P500 reached its ATH gaining +7.238% YTD on March 01.
- The 50ma is a mere 3.11% from this pivot high.
- A 5% drawdown would be equivalent to 2280.83.
- The 100ma is just below these levels at 2265.86.
RSI will be near oversold levels as we near the 50ma. If for some unknown reason, we experience an unforeseen catalyst, we could see a 5% drawdown, bringing us back to previous breakout levels (2280.83).
What about the Nasdaq?
The Nasdaq 100 by comparison, put in an ATH on Tuesday, after FB and others were upgraded. RSI is dropping fast and looks to tag oversold by the time the NDX reaches the 50ma. Volume is above average.
- The NDX has gained +11.573% YTD, based on the pivot high Tuesday.
- The NDX is up +17.04% from the November election low.
- The 50ma is a mere 3.67% from this pivot high.
- A 5% drawdown would be equivalent to 5167.50.
TICK cumulative suggests we could see a bearish crossover. If that should happen, expect to see more downside as this indicator is a real time measurement of institutional sentiment.
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As usual, we still need to keep everything in context. 5% drawdowns are a common occurrence in bull markets. Look for opportunities ahead, instead of dreading a couple of days/weeks of lower prices.
Drawdowns since the 2009 trough. Chart courtesy of Advisors Perspectives.
As traders and market technicians, we look for these opportunities. Warren Buffett is famous for quotes like the following, that “American business — and consequently a basket of stocks — is virtually certain to be worth far more in the years ahead.”
Watch Junk Bonds (JNK) and Crude Oil. Where they go, the equity markets will likely follow.
Do you really think this secular bull market is done? If the media says it’s over, look for the market to do the exact opposite. Watch institutions, as they are the driving force behind the markets, not CNBC.
Happy Wednesday.
Vinny
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