Is it Time to Buy the Dip Yet?

End of Day Update:

The bloodbath continued as the S&P500 smashed through all kinds of technical support. 2,060, 2,050 and the 50dma could do nothing to slow this selloff. But as ugly as it looks on a daily chart, the intraday price-action wasn’t all that dramatic. We gapped lower at the open, but quickly settled into a sideways trading range between 2,050 and 2,060 for most of the day. Those that held through the early weakness were not unduly pressured by an extended intraday slide. The lack of pain showed up in volume that failed to exceed Friday’s totals and barely finished above average. It is hard to claim the crowd panicked and rushed for the exits on such benign volume.

There are two ways to interpret this. Either the tidal wave of selling hasn’t hit yet. Or we’re running out of sellers and this thing is about to bounce on tight supply. While we can logically rationalize the latter, recent history says bottoms form on the day with largest volume of the entire move. Using that pattern as a guide, today’s lower volume selloff is likely not the end of this.

The financial press is trying to convince us the market is melting down because the Fed is moving their planned rate hikes forward a few weeks. Really? When phrased that way, it sounds just as absurd as it really is. So if this isn’t rate hikes, what is it? My money is on the surging US dollar since it pressures multinational companies’ overseas income. But while that is true, the one thing we cannot discount is the US dollar is exploding higher because we have the only global economy worth investing in. As long as global investors continue to throw money at our markets, rates will stay low and equities will keep going higher.

While we will likely see more red before this is done, I suspect we are getting close to a near-term bottom. A morning plunge followed by an afternoon bounce on tremendous volume would be the best buying invitation we could ask for.

Jani