After a two-day pause, the corrective action picked up momentum. The lows from earlier this week were undercut, giving us a lower low, and the S&P 500 broke down through its 50-day simple moving average with a high level of conviction. It finished the week at the lows and now dangling in the wind without any nearby support.
The Russell 2000 actually finished with a small gain today, and breadth wasn't terrible at around 3-5 negative. This is the inverse of the action that we saw earlier in the year when big caps keep running higher on weak breadth. Now we have the indexes underperforming while breadth is relatively good.
If we dig a bit deeper, not only is breadth OK, but there were at least 50 individual stocks up more than 10% on the day. The pockets of trading momentum were robust, although you would never know it from the senior indexes or the doom-and-gloom in the business media.
This is exactly the sort of corrective action that we need. Big caps are correcting to a greater degree than all the small caps and secondary names that have already corrected to a great degree earlier in the year. The indexes are finally closing the performance gap and are becoming more correlated with what has already occurred in the broad market.
Unfortunately, we probably have more struggles ahead of us. We are still in the worst period of the year on a seasonal basis, and the charts will need some work before they can establish some good support. We made some progress today in the corrective process, which is a good thing, although it may not feel that way if you have heavy, long exposure.
I like the way this market is developing. If we do more work to the downside, we will end up with a very good setup when we enter the best time of the year after third-quarter earnings.
Have a great weekend. I'll see you on Monday.