This Is Not a 'One-And-Done' Correction

 | May 18, 2017 | 4:08 PM EDT
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Since March big moves in this market have typically seen a reversal the next day. The bears in particular have done a poor job of following through after some success. Today we had another example of this as a hesitant bounce in the morning gained strength in the afternoon. Breadth improved from negative to nicely positive by the close.

Normally after the sort of selling we had on Wednesday, technicians would be looking for an oversold bounce and then another rollover. The theory is that the folks that were caught in the breakdown will be happy to unload some of those positions that caused them anxiety if they can obtain a better price and minimize losses. That is what overhead resistance is all about.

That dynamic has changed in recent years as V-shaped bounces have become much more common and computer algorithms aggressive buy every dip. It doesn't much matter what the news might be, weakness is viewed as an opportunity. There is very little fear of protracted downside.

The bears seem quite convinced that President Trump's political difficulties will be a continued source of market pressure. They have been consistently wrong on this but the argument now is that the Trump fiscal policy is being delayed due to the political distractions and that will cause ongoing issues.

After Wednesday, the bears have the edge, but the indices have pulled back from the brink a number of times. The bears need to take out today's intraday lows to prove that they have the ability to generate some downside momentum. I think they have a shot at it and I'm being very selective with my longs, but I'm not going to press index shorts right away.

It was a good bounce today and allowed for some repositioning but this does not look like a 'one and done' correction. Of course the V-shaped bounces never seem very convincing at first but this market is dealing with different issues now such as a hawkish Fed and negative seasonality. Selling like we had on Wednesday usually isn't forgotten that fast.

Have a good evening. I'll see you tomorrow.


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