Stocks sold off in spectacular fashion today, continuing a streak of selling that started with the last two trading sessions of 2014. When stocks made their final explosive push lower today, they began to sharply rebound, before seeing sellers take over into the close. Have stocks bottomed for now?
There seems to be a strong potential for the market heading to the 50DMA sometime this month. Yet, in the grand scheme of things I still remain bullish. If you look back at a longer-term chart, the month of September has just been a consolidation month, where we see some of the excess removed from the market. The daily chart is seems to indicate be a prolonged bull flag from the SPY rally in August. There are many stocks that have been sold, mainly the high beta stocks, to allocate for Alibaba. But, many hedge funds did not end up getting a big stake in Alibaba. In my opinion, this means that the money will come back to work soon; it will come back to the tech sector.
Much has been said about the decreasing market volume, and how seemingly every rally has a lack of participation. This view has been used to argue a bearish point of view on the market, however, I will use that view to argue a bullish point of view. The reason the volume is so low is because of a lack of conviction. Since there has not been a correction in over 3 years, investors are too nervous to put money to work. This is either because they think the market is overbought, or that the current fundamentals do not warrant the current S&P 500 valuation.