When the minor selloff came on Thursday, some including me, we a bit comforted, as we needed a breather of sorts. It also helps to gauge the breadth and sustainability of the current uptrend. Global equities were not shaken even with the plethora of negative news over the past few weeks. Be it the Gaza problem, the downing of aircrafts, Argentinian bonds default ...
The first positive development was that stocks were able to successfully hold key support levels for another day. Stocks as measured by the S&P 500 Index made an early run at its 100-day moving average, which has served as reliable support on four occasions since the beginning of 2013, but at its lows of 1916, the index never came closer than five points to this support level, currently at 1911. And the S&P 500 still remains a solid distance away from its 150-day moving average, which provided key support during the correction at the beginning of 2014, currently at 1883. In short, the recent correction over the last two days at least to this point continues to represent nothing more than a pullback in a longer-term uptrend.
When looking at immediate trends, one cannot really be looking at fundamentals alone. The price volume data reveals the underlying thinking of Mr. Market. In both the charts above, Russell 2000 and Nasdaq, the more reflective and broad based indicators, showed that both markets were actually quite finished with the selling and is close to oversold levels. I am not the only person watching these charts. They almost always, always bounce off the 30% level, which is where they are at now.
Looking at local equities, the sharp reversal on Friday morning brings forth a lot of positives. The bounce back by many "hot stocks" indicate that the underlying sentiment and strength are very strong locally. What was more surprising was that more than 15 stocks broke their 52 week high during the last 3 trading days. I am confident that the bull has not been hurt at all.