As you know, the favored plan was/is for a mid-summer market correction (mini or maxi) to clear the tracks for a next, and possibly final leg up in the markets. The less favored view was that the correction would be the start of a bear market. We look at some signals that appear to be confirming the view.
First, let’s get a look at daily SPX before moving on to a few internal indicators. The A-B-C correction scenario as illustrated in NFTRH 822 appears to be playing out as the bottom retest scenario, which I’d thought possible, is off the table. Upside gap #1 is filled and now SPX aims for the upper gap which we noted “would be the gateway to a next leg up scenario”. Taking out point ‘B’ would set SPX on its way.
SPX’s leaders are doing even better on the recovery as the SOX > NDX > SPX leadership chain has been doing its job thus far to signal a recovery as in the short-term SOX leads NDX, which leads SPX.
XLV (defensive)/SPY (broad) ratio is pulling back after a vigorous rise to the downtrending daily SMA 200. As it pulls back, risk is indicated to be on. But also, in the event the ratio were to change trend it could be viewed as a forward negative divergence to the broad markets indicating big money sliding into the defensives before the Everyman catches on.
High Yield spreads are dropping again after a spike with the market angst. One day, a rising spread will indicate real-time* market liquidity and risk appetite problems. Today is not that day. The spike of the last couple weeks may or may not be a first inkling of coming problems. But as long as the spread is declining we are on a relief play.
* As often noted, this indicator is not a good forward-looker. It is a good confirmation of what is happening in real time.
Similarly, the VIX (volatility index) is being repelled back to the hell it came from. In light of our view that the market correction could be healthy in the context of extending the bull, that spike in the VIX says “mission accomplished”. That was some serious jitter action among bull players.
Factor in NFTRH 822’s view that bearish sentiment had registered levels sufficient to end the correction (pending some bottom testing, which has not come about) and the favored view of a summer correction to clear the pipes is on track as of Friday morning. I guess the ‘tell’ was how mainstream media jumped all over the correction in real time, advising the public on how terrible things are and how bad the bear market is going to be.
