This Last Dip Was as Typical as They Come

This last pullback was really as typical as they come. We had a geopolitical event that caused the VIX to jump significantly. And what happened next, is that everyone started calling for a big 10-20% correction. Then, cooler heads prevailed, and institutions came roaring back and bought this market head over heals. Over the last few years, there has not been one geopolitical event that has caused a correction of more than 5%. In addition, the technical picture was so clear. We had an overbought reading on the RSI, and the pullback alleviated that. We went from a 70 RSI on the SPY to a 30 RSI. But, what is really making this past pullback so typical?

The real reason why this past pullback was so typical was because of the bounce back action and the commentary by many professionals during the bounce back. What do I mean by that? The S&P 500 has bounced from 1900 to 1980 and yet every professional is stating on the record that this is merely a snap back rally that will fail, and that we are going to re-test the lows. Traders said that the S&P 500 was going to stop at 1940, then 1955, and then 1965. We blew through those levels and are now back at the old highs. Furthermore, over the last week I have noticed the same commentary that has preceded many strong bounces that ultimately led to 5, 10% rallies. Analysts are stating how we are going into a very weak seasonal time period and that we should have a major correction. However, I do not see a reason besides seasonality. The only possible negative catalyst at this point would be the Fed. In my opinion, geopolitics is baked into the market, along with lower European growth. Therefore, it’s all up to Yellen. Yet, Yellen is a big dove and should continue to stress the slack in the labor market as since the last Fed meeting nothing has improved. So, wouldn’t this mean that the market should actually take off because it means that rates are not going to rise as soon as expected. In my humble opinion, the typical skepticism of the last 5 years warrants new highs. For all of you calling for this ‘bubble’ (that FYI is trading at a 17 P.E, which is the historical average) please give me a new reason why the market should sell-off rather than repeating the same argument that has proven to be irrelevant at this point in time. I am not saying that I am bullish for eternity, but at this point in time, I think we are going higher medium term.

Max Ganik (Maxzak) is a 19-year-old stock and option trader. As of June 2016, Max has been a member of Option Millionaires for over 3 years, and has been a contributor for over 2 years. Max regularly writes blogs for Option Millionaires and has also presented webinars.

Max is the founder of Ganik Market Strategies. He is a member of the Leaders Investment Club. Max has been interviewed by the New York Times, CNBC, and Bloomberg TV. He was also the first high school member of the New York Society of Security Analysts. Max is currently a member of the University of Michigan's premier investment club, Michigan Interactive Investments.

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