At the beginning of week, we said that this week could/should be an important one for the stock market. Well, we still think it is…and today could be the most important day of the week. We say this because it was disappointing that the stock market followed its recent strong rally with such a meaningful decline yesterday. HOWEVER, as much as a drop of more than 1% is disappointing, it was not a disaster by any means. (This is especially true when you compare it to the huge advance we’ve seen over the past week or so.) Also, yesterday’s drop came on even lower volume that Tuesday’s…and the breadth was not horrible. (It was more than 4 to 1 negative for the S&P 500…and more than 5 to 1 negative for the NDX 100. Those aren’t good numbers, but they’re not overly bad either.)
This brings us to today. Will yesterday’s decline turn into a one-day wonder…and be followed by another strong advance? Or, will yesterday’s drop accelerate…and take us lower (on higher volume and more negative breadth)? Right now, the futures are pointing to a higher opening, but since we’ve seen so many reversals recently, we’ll have to see how things playout once the stock market actually opens for trading…..Over the next two trading days, whether the stock market bounces back nicely…or rolls back over and resumes its decline from yesterday should be important as to how the market acts into the end of the quarter.
Our call yesterday that said investors should avoid the bank stocks (and the financials in general) over the short-term worked out very well…as the KBE bank ETF and the KRE regional bank ETF both fell more than 3%...and the XLF financial stock ETF declined by almost 2%. This drop seemed to be caused ...
