We are seeing some nasty reversals lower this morning after promising action yesterday. Although the election is out of the way, apparently the violent indecision of alternating between big days up and down is not yet over, too. Just yesterday, the aerospace and defense plays were collectively surging. Today, though, stocks like LMT are knifing lower.
In addition, the S&P and Nasdaq have made new correction lows. However, the Russell 2000 and semiconductor stocks have not yet done so. Despite those divergences, I am back in retreat mode again, with cash levels north of 60%, and have not been more than 50-60% long in a while.
The 1394-1400 zone was where we spent just about all of August. Below 1420, that is where we were on watch to see if the bulls showed up for secondary resistance. Below there, and the correction becomes all the more serious.
There are still longer-term indications of a cyclical bull market still intact, but huge gap-downs like these after a major event make it all seem irrelevant.
When you remove the angst (or jubilation, depending on your position) of the moment, the market has breached its initial correction support since mid-September. There is some wiggle room to get to the next level lower, but for now violent indecision or alternating big days up and down is the theme.
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