Well, that was fast! Just as everyone was recovering from a food coma following a big Thanksgiving feast, it appeared markets were ready to come down and test the February/March lows. A rough 4% loss during a short week which is normally a bearish one sent ominous signs.
In addition there was a ton of uncertainty abound, with a speech by Fed Chair Powell midweek, and who knew which way those winds would blow. Last time we heard from him it appeared many more rate hikes were on the horizon. Would he continue with this position or soften his stance?
At the end of the week was the G20 summit and all eyes/ears were on the dinner meeting between President Trump and Premiere Xi from China. Trade negotiations have been on-going for weeks, would this be the moment to thaw out the dispute or will more tariffs continue?
With all this uncertainty it is explainable why volatility had risen and stayed elevated. In the past, when assumptions were made about resolving big unknowns the result was a slam in the face. Not this time, said the market. Even coming into the weekend the VIX was sporting an 18% level, quite high for this time of year.
So the week played out well beyond anyone's expectations. The 4% loss from the prior week in the S&P 500 was 'returned to sender', and now all the sudden the technical condition of the market is looking much better. Just a few up days in the market will do that for ya!
Now what?
As we start the final month of trading in 2018, we enter a seasonally bullish period where buyers tend to be ever present to buy any dip. That is not always the case but this year seems a better shot to close the year with a bang. The Fed meeting in a couple weeks might not be a stinger now the Chair Powell calmed nerves this past week.
We may see funds start to chase some return before year end, often a run-up to achieve some gains before the calendar turns. Regardless, let's watch the technical picture very closely for any signs of a breakout or breakdown. We are in that sweetspot now.