The selling in the stock market during the 4th quarter of 2018 and especially in December was some of the strongest we’ve seen in a while. As the selling accelerated, sentiment soured very quickly. And, as with any correction, the faster it falls, the faster it rises.
The S&P 500 fell approximately 20% and has now rallied 10%. So, the oversold bounce has happened. And, it qualifies as a “rip your face off rally”. This hasn’t been a big surprise. Nobody ever knows exactly when it will start after a selloff like what we had. And, nobody ever knows exactly how much it will rally. But, anybody that’s been around the market for a while shouldn’t be shocked that there’s been a strong rally.
But, now we enter the period where investors will be tested. From purely a technical perspective, when the S&P 500 broke the 2600 level, the bottom fell out. We’ve now rallied 10%-ish from the lows on December 26th (intraday). Because the stock market had been holding so many times at 2600, the floor now becomes the ceiling. Technicians have been waiting for this level for some time. We would not be surprised to see some back and fill over the next few sessions.
That basically means that we could see a pullback and some lower prices in the short-term. Then, let’s see if the buyers step back in. This market has been very resilient in the previous 2 sessions. It’s tried to sell off and go negative on various news reports only to find a new set of buyers to push it higher each day.
Keep in mind, we are only talking about the short-term technicals here. The reason this 2600 level is important is simply because everyone is watching it. Various levels become a self-fulfilling prophecy.
So, the test and the battle begins.
Fundamentals are a completely different story which we’ve discussed numerous times on our weekly podcast.