Has the market finally topped? I covered this at the start of the year, and the answer today is still the same.
The answer today, despite the sharp decline for S&P500 futures, is the same answer from the start of the year.....
No. The market has not topped. Which is a good thing for the incessant top callers. They can keep doing their thing.
The only question is just how long this pull back will last before the market resumes its ascent to fresh record highs. The trend remains up, interest rates low, Central Bank assistance remains high.
Pull backs have been healthy for this market. Will today's pull back be a one day affair? Will it even last the whole session? Or is this the start of a long awaited, meaningful correction?
Small caps are the concern. They have led this market from just prior to the election. $IWM just had a trigger we saw just prior to the previous pull back.
We've seen $IWM pull back sharply for several sessions before the broader indices join the action.
As it stands now $SPY, $QQQ, $DIA all have strong positive momentum.
While odds are increasing that $IWM's bull flag will be negated, negative momentum could turn into more sideways action. $IWM traded virtually sideways for months after the post-election move.
If that's the case, we could see stocks continue to grind higher as earnings season picks up.
I will be watching momentum for $SPY $QQQ and $DIA in the days ahead to see if the set-up is forming for trade-able downside action.
and of course the VIX:
Earlier this year it painted a record low of 8.84. It has yet to come back to that level, which I think it will at some point. This morning the VIX is surging up over 10% to 11.14. Despite the relentless upside in 2017 we have seen the VIX soar over 40% on occasion.
Ultimately each spike higher in the VIX has been only temporary. Of course at some point in the future the VIX will spike higher and remain elevated. I'm not so sure we are there yet.
For the short term if small caps breakdown and the VIX remains elevated, momentum for $SPY $QQQ and $DIA could begin to turn south, offering a nice trade for short term downside.
On the flip side, the moves back into positive momentum have offered great trades for upside.
I don't think the top is in for the market. I think financials will lead the next move to record highs. But this morning's action, and the waning momentum of small caps cou;d be the pre-cursor to a small short term pull back for the market.