Wall Street has finally come around to the understanding that when the Fed told us they were going to shift from a policy of massive accommodation…to one of tightening…that also told us that their safety net had been moved lower than it had previously been. In other words, as we said for most of the past few months, the “Fed put” is now further “out-of-the-money” than it used to be.
The question now is just how far below current levels that new level now stands. The Fed meets this week…and they’ll have their usual post-meeting announcement on Wednesday afternoon…which will be followed by the Chairman’s press conference. At that point, we could get some more clarity on this issue, but it’s a good bet that the “further clarity” still won’t be very definitive. So, although we could get a bounce in the stock market at any time, the line of least resistance is likely to be lower in the months ahead.
Firday’s sell-off came on much higher volume…and the number of stocks hitting 52-week lows came in at 525. Of course, the higher volume could have been due to the expiration on Friday, but that would have been out of the ordinary…given that it was not a “quadruple witch” expiration. In other words, there were SOME signs that we had a bit of capitulation on Friday…..No, this was nowhere near the kind of capitulation/washout that we see at a major bottom, but it might have enough to indicate that a short-term bottom could take place quite soon. It is very, very rare that a correction (or a bear market) takes place in a straight line…so we would expect several relief rallies along the way. If history is any guide, those bounces will be quite sharp.
That said, it sure doesn’t ...
