The S&P 500 hit a high of 1,227 November 9 and then had its first retracement in months. The move lower was significant enough that IBD put the market in a “correction”. The S&P’s went as low as 1173 before bouncing back to 1200ish.
At this point, the market has a lot to prove. Corrections can be from 5%-20% and the Nasdaq only pulled in 5% off the highs and the S&P a little a bit less than 5%. Typically during a correction, the leaders correct in a correlation of 1.5 to 2.5 time more than the market. Most leaders held in around the same as the market, examples being Apple Inc. (Nasdaq:AAPL), Baidu.com, Inc. (Nasdaq:BIDU) and Netflix, Inc. (Nasdaq:NFLX) held in well. Stocks like salesforce.com, inc. (NYSE:CRM) and Riverbed Technology, Inc. (Nasdaq:RVBD) even made some new move highs. If the bears had any control of this market, they would not have let CRM extend so much post earnings.
So at this point we have some mixed signals as to how deep this retracement will be. The next five sessions will be very important. As we enter the last five weeks of the year, we always get the “haves” and “have nots” environment. The Fed has made clear its intention to prop up asset prices and promote inflation, so I don’t see any reason why the market will not continue to be strong into year end. Only take the compelling trades and remain in control. Cover early if your short, and sell longs along the way in order to book profits and stay with trades.
