The Oversold Bounce

After a 7% pullback on the S&P 500 seems the blogosphere and financial media have turned bearish on the market. They could be right but it seems premature to me. Did the masses see the pullback in February as a bear market? I do not recall the same sentiment then. In the end it does not matter how we describe markets, only how we interact with them. But noting the shift in sentiment might help there.

The chart above shows the S&P 500 price movement since the April move higher. In this context the drop at the start of October is scary. A drop though the 200 day SMA and retracement of 61.8% of the move higher. Momentum indicators also made new lows. The RSI moved deep into oversold territory. The MACD matched the April low. Bearish undertones, yes, bear market, not so sure.

Contrast that with the broader picture above of the S&P 500 since the 2016 election. Another reset at the 200 day SMA. After a higher high. And if it stands, a higher low on this reversal. With momentum indicators reset much lower. Call me a skeptic, but price is what pays the bills not indicators or moving averages. For now I do not see the oversold bounce in a bear market I am reading about but a reset in a continuing bull run. Time will tell.

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