April 25, 2024
Good morning,
We will assume this month’s steep sell-off is only a correction until the technical damage begins to invade the medium- and longer-term market indicators. Thus far, there has been plenty of technical damage from all the selling, but it has been contained in the short-term indicators. In fact, short-term sentiment has turned positive and is oversold now – an early sign (but rarely the only sign) of a bottom to a correction.
The market bounced earlier this week, reversing the steep decline of our correction (see the Bloomberg Chart of the S&P 500 Index below). The highest probability path ahead, if this is to remain just a correction and not something worse, calls for a test of last week’s lows at a minimum. The chartist in me would love to describe plenty of more details to you (moving averages, momentum, …), but let’s leave it here: we remain in a correction and are looking for signs of a bottom ahead.
One component of any correction is elevated volatility. One reason I think this correction may have more to go is because volatility may stick around. With an anxious Fed, which is self-described as data dependent, it means meaningful market moves to almost every economic data release. Add to that, earnings season, and the shift in the AI narrative to costs as well as revenues (see Meta’s earnings last night), and elevated volatility may be just as sticky as inflation. Ugh, sorry to end on a less than sanguine note.
Be well,
Mike
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