In a word...no. At least that's my opinion. No doubt you are aware of the the significant down day on Thursday and to a lesser extent on Friday. Please click on the chart which follows. For the week ended 5/7 the market closed down 6% from the April 30 close. If you remember last week I stated that there was a good probability that the market may decline over the next 1-3 weeks. So why did the market sell off so dramatically last Thursday? In my opinion there were primarily three reasons...1) One of the things that led me to believe that the market may be susceptible last week is the lack of institutional volume supporting rising prices. Click on the chart again. Look at the bottom of the chart. This green histogram is simply the monthly NYSE volume. Notice the blue arrow? This shows declining monthly volume since November, 2009. Essentially higher prices were being supported by the retail crowd. 2) The market had moved 63% from the March, 2009 low without a meaningful correction. A market correction was way overdue. 3) When you combine #1 with #2 and a negative news story comes out, like the Greece financial situation, the "herd effect" kicked in. In other words panic selling. Everyone and their brother rushed in to sell at the same time.
So what does all of this mean? Although there has been significant weakness recently which is an early warning sign to potential long term weakness, not all the signs are there yet. This correction although swift is still only 6% which is well within the realm of a "normal" correction in a bullish market. So the green arrow remains in effect at least until the next monthly update, which is May 29. HOWEVER, given the current market situation I will monitor the markets weekly and if conditions warrant, may make an adjustment to a red arrow prior to May 29. So keep a cool head and stay tuned. Have a great weekend everyone.
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