Are the markets in trouble?
Not yet, but there's some cracks. We've seen something in the last two weeks we haven't seen in some time: a succession of selloffs.
Last week, we saw a familiar phenomenon: a brief 1 percent dip in the market that turned around within a couple days. But on Thursday we had another bout of selling that is starting to do some technical damage. The small-cap Russell 2000 and the Dow Jones transportation index have both broken through their 200-day moving averages, a major technical indicator.
Almost half of all NYSE stocks are below their 200-day moving average.
Several events have come together to cause this:
The next few days will be an important test. All this year, people have been set to buy the dips —and there haven't been many of them. That hasn't happened today. People are getting burned after buying last week's dip, so they are not getting the same reward they used to get. It's interesting that the S&P took a dip to a new low at the end of the day when it dropped below the low from last week (2,437).
Makes sense: once you get burned a few times, it's tougher psychologically to buy the dip.
Look, we've had a huge run in the market. Now is the right time to get a pullback. With buyers on strike due to seasonal low volume, issues with Presidential leadership, and sheer exhaustion of market leaders after a strong year, it makes sense for stocks to pull back some. For the moment, the risks outweigh the benefits.
What's a pullback? In today's context, 5 percent would be notable. We haven't had that in a long time — you have to go back to Brexit in June, 2016.
A 5 percent drop from the recent closing high of 2,480 would bring us to 2,356, which would bring us back to the levels last seen in May.
Seems like a long time ago, doesn't it?