Correction Over? Still A Mixed Market

There was plenty of investor and trader angst at the start of last week, consistent with the prior week’s sharp decline in the Bullish% figures from the American Association of Individual Investors. On September 8, 38.9% of individual investors were bullish, but the following week only 22.4% were bullish. The Bearish% rose from 27.2% to 39.3% during this period.

Given my technical appraisal of the stock market two weeks ago, I was surprised that investors and traders were not more worried about the stock market. As has recently been the case, the dip buyers moved quickly and started buying before the close on Monday. Stocks then moved higher for the rest of the week. By last Thursday’s AAII survey, the Bullish% had increased to 29.9% from 22.4%, while the Bearish% was virtually unchanged.

Though some downplayed its impact on the US market, the debt crisis surrounding Chinese conglomerate Evergrande is seen as a primary factor in Monday’s decline, as the firm owes $305 billion and missed a payment deadline to investors this past week. Investors were also nervous over concerns that the economic recovery has lost strength and the persistent spread of COVID-19.

For the week, the Dow Jones Industrial Average and iShares Russell 2000 were up 0.6%, just a bit better than the 0.5% gains in the S&P 500 and Dow Jones Transportation Average. It was a rough week for the Dow Jones Utility Average, as it lost 1.2% and the SPDR Gold Shares was 0.3% lower.

So did the rebound from Monday’s lows and rally through the week signal that the market’s correction is over? The daily market internals were positive early on in the rebound, but for the week on the NYSE there were 1721 issues advancing and 1762 declining.

The Spyder Trust (SPY)

SPY
had a low Monday of $428.86, which was just above the monthly S2 support at $428.56. There is additional support in the $423-area at the June high and July low (line a). SPY closed the week at $443.91, which was above the 20-day exponential moving average (EMA) at $442.98 but below the monthly pivot at $445.48.

There were strong bullish signals for the market in early June from the advance/decline lines. The challenge for the market for the past few months is illustrated by the differences between the S&P 500 and the NYSE Stocks Only Advance/Decline lines. In July, August, and early September the S&P 500 A/D line made new highs but then dropped below support (line b) on September 17. The A/D line has rallied back to its flat EMA, but is still below its former uptrend and resistance.

In contrast, the NYSE Stocks Only Advance/Decline line made its high on June 8, and has since formed a series of lower highs (line c). This was a sign that a majority of common stocks were not in…