The “correction through time” thesis has essentially been the underlying story of this market for several weeks now, despite marginal new highs in the major indices. This morning, we are seeing further weakness in many sectors and stocks, as the Russell 2000 small cap-dominated index has come down to a particularly important area to observe. The Russell is at both the 800 level which has proved to be not just psychologically important but technically as well, and has its rising 50 day simple moving average just below.
Apart from that, the S&P 500 is essentially trading where it was several weeks ago, in the low-to-mid 1360’s. Looking across many sector charts, this looks like a case of them needing more time to consolidate, rather than a bearish omen. Of course, a deep correction always starts out as a shallow one, which is all the more reason to never become complacent about anything in the market. That said, some of these moves lower seem a bit obvious, such as the coal breakdown, in a name like WLT in particular. I have no position in the coals but I would be extremely reticent to short them. As I discussed last Friday, my sense is to be on watch for a quick, scary shake before going higher.
As the session progresses, I am looking to see whether the bulls can muster another afternoon rally. The correction side of the boat seems to be filled with traders happy to see this pullback. I would be surprised if the market kept being so acquiescent.
A few stocks that are working well today: AIG PKT RTN SCSS
