Market Fade Begins

It was going to happen at some point, but markets have started to ease back after an extensive rally. We have seen an increase in bullish (and a drop in bearish) Investor sentiment as the rally extended beyond its 200-week MA, to the point it's again at an inflection point, but perhaps an inflection point that the next leg down will confirm a major swing low.

In the near term we have the first of many buying opportunities. For the Russell 2000 ($IWM) we have a test of the 20-day MA off the back of yesterday's distribution day. A bounce here would lead to a challenge of 200-day MAs, assisted by net bullish technicals.

The S&P will soon be testing the convergence of 20-day and 200-day MAs in a scenario that should offer a bounce play opportunity. As with the Russell 2000, technicals are net positive.

The Nasdaq is doing well to hang on to its gains having not suffered the losses of the Russell 2000 and S&P. While I would look for positive support tests of Russell 2000 and S&P, it might end up been the Nasdaq that does the lead out and challenge 20,000 for a second time.

As we head into Friday we need to consider as to what degree of losses we can expect from this early fade. Investor sentiment suggests we won't see a successful support test in S&P or Russell 2000, and likely further losses in the Nasdaq. But even if such losses do occur, they are likely part of the last leg down before a major swing low gets put in place. It's an investors market.

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Investments are held in a pension fund on a buy-and-hold strategy.

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