'Everything turns, rotates, spins, circles, loops, pulsates, resonates, and repeats.'
-- Suzy Kassem
It is understandable that so many traders are anxious to predict when this long-running bull market will come to an end. Sooner or later, there will be an ugly downtrend and those that can avoid its sting will rack up some exceptional relative performance. That is why every time there is an ugly day or two there are bears ready to proclaim that this time it is different and a significant top is now forming. They have repeatedly been wrong.
The last time the market suffered some decent corrective action was back in January and February 2016, when the Fed was making hawkish noises as the international economy was sputtering. The central banks put together some coordinated action and produced a very strong V-shaped bounce off the February 2016 low.
Since then, there have been three or four other pullbacks that have produced V-shaped bounces. In each case, the selling has only lasted a couple days before the buyers showed up and took the market straight back up. The bears that declared that this time the correction really was going to gain some traction were squeezed and forced to chase the market higher once again.
After a two-day correction in the big-cap technology names, the market looks ready to bounce back once again. It has been an odd mix of action, with most of the market holding up well while recent leaders such as Amazon (AMZN) , Nvidia (NVDA) and Action Alerts PLUS charity portfolio name Apple (AAPL) have suffered their deepest pullbacks in a while.
If the pattern holds, the market will shake this selling off and return to its low-volatility uptrend. It will be quickly forgotten that there was any selling. The bears believe this time it is different and the market isn't going to recover that easily. It has happened too often, and seasonality is turning negative as well.
The bulls shrug and look ahead to the Fed interest rate announcement that is due tomorrow afternoon. The market loves to love the Fed and is quick to forget its struggle when Janet Yellen issues their policy statements. A hike in interest rates is viewed as confirmation that the economy is healthy and growing. A pause in rate hikes is just a continuation of the supply of cheap cash that has driven this market for so long.
This pullback is a bit different, because it was so narrow and focused on key momentum names, but the overall pattern has supported V-shaped bounces numerous times. With the Fed beckoning, it is likely that the bears are going to have a hard time gaining downside traction.
The bears want to believe that a turning point is here, but the pattern of action suggests that we are going to bounce. Maybe this will be the failed bounce that turns into something significant, but it hasn't paid to be bearish after two days of selling.
We have some positive action in the early going, with the Nasdaq 100 leading the way.