We have described the current stock market correction/consolidation as a reaction within an intact uptrend. For those who may have shorted it as I did (for balance to long positions) or just to be outright bearish, we should be aware of some levels that could signal an end to the correction. Today was a good bounce, but it did not bring signals for the correction’s end.
SPX bounced to the SMA 50 and the EMA 20. It has not broken the short-term downtrend.
Dow is on that same message.
NDX not surprisingly bounced at the SMA 50. 5400 is the key here because that is where the short-term EMAs 12 & 20 are (apology here… I’ve been calling the EMA 12 the ‘EMA 10’; a minor transgression I’m sure).
Transports are bouncing but still bearish.
Russell 2000 bounced as well, but remains bearish below the EMAs 12 & 20 and ultimately, the SMA 50.
Semis have clear resistance at the converged EMAs 12 & 20 and the 50 day averages.
Moving to some sector ETFs, Materials continue not to look good, with the moving averages being the key resistance.
Healthcare held the SMA 50, at least for now.
As did my favored investment area, Medical Devices. I’d like to get a good enough correction to buy device companies with IHI at its SMA 200. That is still an open question.
Energy broke hard on Thursday and bounced a bit today. Below the SMAs 50 & 200 I don’t want to touch this.
Financials remain bearish and probably will as long as Treasury bonds remain constructive (yields under pressure).
Finally, the defensive Consumer Staples is doing just fine in this choppy and tentative atmosphere. Just as I think it should be as risk waffles toward ‘off’.
Bottom Line
Most items seem capable of continuing the correction. Relatively bullish items are Consumer Staples, Big Tech and Healthcare. Relatively bearish items are Financials, Semis and Small Caps.
Generally speaking, if the bounce goes further than its status at today’s close I am going to consider covering shorts (on the relatively bullish NDX, at the least, but possibly others) because the shorts are only there to theoretically insulate longs, which are still doing fine on balance (profit finally taken on SQM, though it will remain foremost on watch). If items start making a couple daily closes above their limiting moving averages that could be a signal of ‘correction over’. Meanwhile, the correction (or consolidation) is still generally on.
