Sven Henrich
NorthmanTrader.com
October 22, 2018
Last week’s inside week produced a massive rally off of heavily oversold conditions, but then gave a large part of the gains back, closing just above the weekly 50MA, but below the 2016 support trend line leaving markets on a knife’s edge. My suggestion to both bulls and bears here: Pay really close attention and keep a very open mind. Make no mistake here: This is a critical phase for these markets.
Let me walk you through some considerations.
As mentioned in previous updates from a technical perspective the underlying weakness in the internals leading up to the September/October peaks amidst tightening technical patterns and negative divergences (Lying Highs) was not a surprise.
And if you view this recent correction through the lens of simply supply & demand, this correction also makes perfect sense. After all insiders cashed out aggressively in September and then 2018’s biggest artificial liquidity infusion, buybacks, temporarily ceased into the earnings window.
From a bullish perspective this correction will be simply another temporary dip before buybacks return and then stocks can embark on another major rally into the positive mid term seasonality window:
This may well happen and that is clearly the script many expect.
- A d v e r t i s e m e n t
However, for counter balance, I’d like to offer a couple of other considerations.
Firstly, in regards to the mid term seasonality window, let’s be clear, 2018 so far has not followed the mid term seasonality script very well. It would have called for a market peak in April, then a low in to late September/early October. None of that has happened in 2018. We saw a first peak in January and a low in February and then another peak in September. So if one is relying on a mid term seasonality script they are relying on a pattern that hasn’t really applied all year.
But as you see in…