Yesterday's Weak Close Was Nothing To Worry About
Jani Ziedins | May 22, 2020 12:56AM ET
Obviously, many S&P 500 up-days are good days and down-days are bad days. But don’t overlook the fact there are also bad up-days and good down-days. Where in this matrix did yesterday’s price action land? Good question.
Stocks rebounded nicely from last week’s modest selloff and set two fresh higher-highs this week. There are few things more bullish than responding to an attempted dip with higher-highs. Not only did the market refuse to break down, but prices resumed rallying to even higher levels.
That said, the market stumbled into Tuesday’s close. A waterfall selloff in the last hour of trade is always something to be wary of. If we get a few too many weak closes in a short period of time, that tells us big money is getting out and we shouldn’t be far behind. But rather than extend Tuesday’s weak close, the index bounced even higher Wednesday. All clear right? Well…not so fast. In a bit of groundhog day, yesterday’s price-action produced another weak close. Is this second weak close something we should be worried about?
No, and I’ll tell you why. First, the weakness developed early in the day and rather than trigger another waterfall selloff, supply dried up and prices drifted sideways for the remainder of the day. The all-important final hour of trade was more flat than anything and that told us big money wasn’t abandoning ship yesterday.
The second thing to keep in mind is down-days are a very normal part of every move higher. In fact, I get nervous if we go too long without a normal and routine down day. They are healthy and they keep uptrends healthy sustainable.
The short answer to the original question is yesterday was a good down-day. There was nothing unusual or noteworthy about the 0.78% loss. That means the path of least resistance remains higher and there is no reason to worry about yesterday’s very benign down-day. Until further notice, continue giving this rebound the benefit of doubt.
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