If we look back at the last few corrections of 10% or more, they usually do bounce sharply but then roll over for a retest of the lows. As the market levitates near a 50% bounce at what also happens to be its 50-day moving average, it is hard to figure out what will propel it to a new high at this time.
One still wonders with the 10-year treasury currently on track to hit 3% within a week or two will this ring any bells? Although in a perverse way, the expected losses in bond funds from rising rates may be driving some investors into stocks momentarily.
We also know that corporate CEOs doing stock buybacks to prop prices are the largest source of new funds into the markets. Bank of America tells us of their hedge funds clients are bailing on the bounce while the corporations are buying.
That lower price channel which matches the 200-day moving average appear to be calling to the market saying, “retest the lows here” just like in 2015. We will see. But if you are heavy in stocks, now might be a good time to lighten up a bit in case the market does retest soon.
Of course, there will probably be other rallies and additional corrections over the course of 2018. But I do think the relentless climb higher is over.
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