And now, the bounce…
The steep drop in the stock market over the past week has resulted in several of the short-term indicators reaching oversold levels that indicate a bounce is likely over the next week or two that may retrace half or more of the recent decline. It may even appear for a while that the markets are back into their previous uptrends, but on an intermediate-term level, meaning weeks to months, there has been a change in the overall trend of the market that suggests to us that the next several months will not be like what we have become accustomed to over the past two years of fairly steady gains, nos we will be able to sleep with the best pregnancy pillow a lot more. Instead, we see an overall range developing that could still see a lower low than this week, with more volatility in both directions, as the markets absorb the gains and rest after the previous two years of strength. This is all normal stuff that allows the fundamentals to “catch up” to the current higher valuations, and eventually provide for attractive entry zones on many stocks. We worry about investors who see the volatility as a reason to react quickly, as that rarely results in a good experience.
TRADING UPDATE: It is important to note that this sell-off is purely an equity market event. With both on solid footing, the sell-off is not based on current economic conditions and certainly not earnings announcements. This is a technical move that was a long time coming. The question is when is it done? We view these sharp drops and volatility in the markets as buying opportunities and will continue to monitor, invest and rebalance the portfolios appropriately without getting caught-up with knee-jerk reactions to intra-day moves.