The shift in market sentiment since Wednesday has been remarkably abrupt. On Wednesday market participants were celebrating a promising Covid-19 treatment, and a press conference by Fed Chair Jerome Powell that caused many to believe that the Fed would not allow the market to go down in any meaningful way.
There wasn't any major news that would cause a sharp shift in those views but some pretty good earnings reports have produced selling and a huge jump in small caps stocks has almost totally reversed. There weren't even any signs of dip-buying today.
Amazon (AMZN) , which has come back from a negative response to earnings on a regular basis, is making new intraday lows this time. Apple (AAPL) is still being treated as the closest thing to an equity-based money market account. That's probably due in part to its willingness to continue to buy back its own shares with its massive cash horde.
Breadth is running about six losers for each advancer and there is no notable safe haven. There are a few 'stay at home' plays on the radar and gold is perking up again but this is essentially 'sell everything' action right now.
If we step back and take a look at the bigger picture, this action should not be a huge surprise. The bounce off the March lows was much bigger and lasted longer than many thought possible but it still was nothing more than a very energetic counter-trend bounce. It was big enough and strong enough to convince many that there was a V-shaped bounce occurring, and when that was combined with $10 trillion in stimulus it was a good argument, but it still is not logical technical action.
As I discussed this morning, this price action may not feel very good, but it is logical in the context of what is going on out there.
At this point, there is no way to know how deep this pullback will go. All we know is that a second corrective wave of action is starting and it is going to take some time for it to play out. It is possible that the Fed or other fiscal measures could ride to the rescue but the charts currently suggest that this pressure could last longer than just a couple days.
Traders should be celebrating this action as it will give us a fresh crop of opportunities. Just make sure you plenty of cash on hand.
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