"The next few weeks (leading into mid-term elections), are, at best, likely to see a notable pickup in volatility. At worst, a pullback in the mid-single to low-double-digit % range."
And here's the update of the Dow chart I've been sharing with you for the past week: click to enlarge...
As I've discussed in writing, and on the video (here and here), the volume setup that developed as the Dow tried to wrestle its way back from what was then a mid-single-digit pullback was less than inspiring.
Sure enough, the low was tested, and, as of today, it failed. The Dow closed down over 600 points, which for now keeps the decline in what we'll call "pullback" territory (-8.8%), but just a hair away from an official "correction" (-10 to -20%).
So now what? Well, good question!
Last Friday, one purposely wacky TV market personality was thinking the rout may be over. A couple days earlier, on that mid-week 500 point gain I referenced on the video, Goldman Sachs said it's "time to buy growth stocks" (words to that effect). Yesterday, I saw a headline that suggested that the, again, wacky CNBC guy was thinking yesterday's rally off the bottom could be the all-clear signal.
Now, while I appreciate the effort (I guess) that these folks put forth on the public's behalf -- well, actually, sometimes I wonder if they're really of much practical help -- you won't find me "officially" going there. Meaning, I'm not calling a bottom!
I may, however, call our clients' attention to market internals that, at times, help us gauge near-term expectations (like the volume data we've been exploring the past few days).
While I haven't seen any headlines yet, I'll bet ya that there is a chorus of pundits calling today the bottom; the great capitulation that takes out the last of the panicky sellers and opens the door for the smart money to come pouring in. And, you know, in some technical respects they may have a point.
Typically a violent pullback ends on what appears to be indiscriminate selling. Today felt that way; we saw pretty broad, across the board, selling with a number of technical levels getting blown out, or, let's say, punctured.
That said, despite the blowout feel, in other respects it wasn't as bad as someone who knows markets, and is looking to allocate some cash, might like to see:
In terms of volume, U.S. equities changed hands to the tune of 9.4 billion shares -- on October 11th that number was 11.5 billion. NYSE volume attributed to declining shares was 86% -- it was 91% on October 10. And an index that tracks a ratio of advancers and decliners to advance/decline volume rose to 1.9. The "experts" say 2.5 is more indicative of washout conditions.
So, technically speaking, maybe today was the end of it, maybe it wasn't -- honestly, doesn't much matter if you're a long-term, fundamentally-driven investor.
In terms of the near-term external market headwinds that I recently listed, they're all still there. Which doesn't necessarily mean that the market has to go decidedly lower -- perhaps the latest rout has factored all of that in. However, alas, I'll remain skeptical of the rallies that are virtually certain to occur over the next few days/weeks until, frankly, I can check the threat of protracted trade war off of my list.
We'll keep you posted.