Dow Sheds Its Gains, but It's Not Time to Panic…Yet

Michael Haddad

12:54 p.m. Here we go again.

After opening much higher, the S&P 500 has gained 0.1% to 2729.85, while the Dow Jones Industrial Average has dropped 35.56 points, or 0.1%, to 25,017.27. The Nasdaq Composite is up 0.7% at 7378.69. The Dow had been up 414.72 points at its high of the day.

Should we worry? Absolutely. But there is a silver lining to the intraday pullback—we’ve seen this type of action before, says Jonathan Krinsky, chief market technician at Bay Crest Partners.

What does he mean? Following Thursday’s selloff, the S&P 500’s 14-day relative strength indicator, a measure of whether an asset is oversold or overbought, closed at 17.66. That’s only the third time since the Financial Crisis that the RSI has closed below 18, and a sign of intense selling pressure, Krinsky says.

The other two occurred on Aug. 24, 2015—when China’s currency collapsed—and on Aug. 8, 2011, when Standard & Poor’s cut its credit rating on the U.S. In both cases the S&P 500 gapped up at the open—just like it did today—before selling off, and but found a bottom later in the afternoon. “So this early ‘gap and fade’ we are seeing could just be part of the bottoming process,” Krinsky says.

He also notes that there have been just 21 days since 1950 when the 14-day RSI closed below 18. Three days later the S&P 500 was higher 86% of the time, with a median gain of 2.15%.

So yes, the pullback is scary. But it isn’t time to panic…yet.

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