A Rare Selloff On Wall Street

BOUNCE ATTEMPT POSSIBLE IN COMING DAYS

According to breadth data from stockcharts.com, yesterday was the worst NYSE Advance-Decline Volume session in history. Given total market volume has changed significantly over the past 80 years, it is more relevant to compare today’s selloff to the recent past. As shown in the chart below, NYSE Advance-Decline Volume posted the lowest reading in the last decade (by a wide margin).

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The last reading in the ballpark of yesterday's came on December 24, 2018. We all know Christmas Eve 2018 marked an important low. Is it possible for an oversold market to keep dropping? Yes, however, from an odds perspective, it would not be shocking to see at least a significant bounce in the coming days. The table below shows what happened in the stock market after extremely low NYSE Advance-Decline Volume readings in 2010, 2011, 2016, and 2018. In all four of the recent cases, the S&P 500 was higher seven calendar days later by an average of 5.01%.

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From a longer-term and keep-an-open-mind perspective, we have to respect selloff (a) may not be an important low (see 2010), and (b) could possibly be a form of a bearish breadth thrust. The table above simply helps us understand good things can happen after sharp “run for the exit” selloffs.

The Senior Loan ETF, which was helpful in January 2019, was able to rally into Monday’s close and finish flat for the day. The 10-2 yield curve also improved Monday (moved further away from inversion).

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As pointed out on the @OddStats Twitter Feed, it is extremely rare for a Monday to be down more than 2% when the previous week ended with three red sessions of 0.70% or more. It has occurred eight other times  since 1950. The table below shows stock market performance was positive after 14 calendar days in all of the historical cases since 1950.

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Our allocations, which include the cash raised last week, bonds, and gold, remained in line with the data at Monday’s close. Additional adjustments may be called for, especially if the S&P 500 fails to make a stand somewhere between Monday’s close and 2750-ish. The blue and green lines below come in between 2770 and 2800-ish. The S&P 500’s weekly chart has a lower Bollinger Band at 2776; the monthly Bollinger Band centerline currently sits at 2782. All of these guideposts are within 3.3% of Monday’s S&P 500 close.

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