The market is undergoing some of the first real corrective action since the end of June. The DJIA is still exhibiting strong relative performance but the Nasdaq is now down 2.5% in the last two days. The real damage is being down in many individual stocks that had a good ride in the month of August.
Action like this is a good reminder of the ebb and flow that occurs in normal markets. Even the strongest markets need to rest and reset. A pullback doesn't mean that a crash is about to occur. We need corrective action to shake things up and to shift sentiment so that new buyers and sellers will emerge.
At this point the pullback is not technically significant. The S&P 500 filled a gap on its chart that was formed when the market gapped higher on August 27. That was the first main level of support and now there is a downside gap from back on the morning of August 10.
The S&P 500 could fall another 40 points and still be in an uptrend. That is how extended it has become since the move off the April lows. A pullback of that size wouldn't feel meaningless and it would certainly create some negative sentiment, but it is the sort of action that is needed to create conditions for a run to conclude the year.
This is just routine corrective action right now and should be embraced as an opportunity to find new entry points. A pullback here isn't an indication that a major correction is about to occur. It is just part of a healthy cycle. Work on a shopping list and start stalking some of your favorite names.