The S&P 500 skidded 0.8% Friday, making this the fourth loss out of the last five sessions.
Nothing much changed in the headlines. Inflation remains higher than the Fed wants, but the economy is stubbornly resilient in the face of rising interest rates. A few months ago, investors were obsessed with the half-empty portion of the glass. Now all they see is half-full.
But with a massive amount of buying in the rearview mirror, we need to find new buyers to keep pushing prices even higher, which is getting increasingly difficult. That doesn’t mean it can’t happen, just that the odds of a near-term cooling off are growing with each passing day.
The rally paused this week, and the index remains stuck under 4,400 resistance. Get back above this key psychological level; it is full steam ahead. But until that happens, the smart move is trading this cooling off.
As I explained in Tuesday’s piece:
At this point, this violation of 4,400 is guilty until proven innocent. If we can’t get back above 4,400 Wednesday, position yourself for more selling. The most aggressive can keep holding their shorts with stops near [last] Friday’s close. For everyone else, keep waiting and watching for the real bounce because Tuesday afternoon probably wasn’t it.
No one knows what the future holds. The best we can do is trade what’s directly in front of us, and right now, that means trading this latest cool-down. We rallied hundreds of points over the last few weeks, and it takes more than 50 points and a few days to reset the clock.
Shorts can keep holding their shorts, and those that want to buy the dip need to sit on their hands a little longer because this dip still has a ways to go before it is done.