It only took the major indices three weeks to accomplish what typically takes a year. From deeply extended breadth conditions to the downside that culminated in a correction ranging between 20-25%, the indices snapped back ~15%.
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| COMPQ 01/19 |
When the markets are down it’s beneficial to look for the positives. When they are up it’s beneficial to asses what the negatives might be. Historically it is not uncommon for indices to snap back following a significant leg down before sellers dominate again. Whether this scenario plays out remains to be seen, but what is evident is that on a shorter and medium time horizon, stocks above their 20 period moving average are overextended to the upside, and the percentage of stocks above their 40 period is at a cautionary level.
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| %NYSE > 20MA |
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| %NYSE > 40MA |
Moves like this are unlikely to be sustainable, and in the least some form of pullback or sideways consolidation should be anticipated. How much selling hits the tape and the manner in which stocks behave moving forward during the next two will clarify matters.
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