The Long Overdue Pullback Hits Wall Street

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Week In Review: The Long Overdue Pullback Hits Wall Street

The long overdue pullback finally hit Wall Street as the major indices pulled back from some of the most overbought levels I’ve seen since the 1999-2000! Thankfully, we didn’t panic and instead we had a plan and traded our plan which is exactly what we are supposed to do. I wouldn’t be surprised to see a steeper 5-15% pullback unfold over the next few weeks as we approach the election. For now, the next (important) level of support to watch is the 50 DMA line and as long as the major indices remain above that level then the bulls remain in clear control. 

Monday-Wednesday’s Action:

Stocks rallied nicely on Monday which was the last trading day in August. August was a very strong month for the stock market as the S&P 500 surged over 7%, making August the strongest month since April 2020. In fact, there were only a handful of down days for the entire month. Separately, Apple did its 4 for 1 split and Tesla did its 5 for 1 split on Monday. On Tuesday, the market continued to race higher helping the S&P 500 and the Nasdaq both hit new record highs. The huge winner was Zoom (ZM) as the stock vaulted 40% after smashing numbers last quarter! Stocks rallied sharply on Wednesday as the lagging areas of the market got a strong boost as money flowed out of some of the stronger areas.

Thursday & Friday Action:

Stocks fell hard on Thursday as many of the overbought and over extended tech stocks finally pulled back. For weeks, I’ve been saying that the market is extremely overbought and way overdue to pullback and that’s exactly what is happening. For now, this is a normal pullback, but I want to see how the market reacts near support (it’s moving averages). Before Friday’s open, the government said non-farm payrolls rose by 1.37 million in August and the unemployment rate fell to 8.4% as the U.S. economy continued to recover.

Market Outlook: Flood The System With Liquidity 
Global governments and global central banks stepped in with massive rate cuts and other “aid” packages to help “stimulate” both Main Street and Wall Street. So far, it is working as intended. As long as March’s lows hold, the market will likely move sideways to higher. On the other hand, if March’s lows are breached, then look out below. As always, keep your losses small and never argue with the tape.

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