Correction, Not A Top

The S&P 500 has fallen a quick 40 points from last week's highs and the market is oversold, so we are seeing a bounce this morning. I don't believe the bounce will carry very far as there are too many trapped longs that will look to sell a bounce. Corrections are as much a function of time as price. It is too soon to get a good rally, but another week of corrective action should produce a better rally.

I believe we are seeing a correction and not a market top for a number of reasons:

  • We continue to see very aggressive share repurchases being announced. Last night Quallcom announced a $4 billion repurchase and the previous night Applied Materials announced a $3 billion repurchase. This comes after a very strong month of share repurchase announcements.

  • Mid-March to mid-April is an extremely seasonally strong period.

  • There have been no buyable dips this year. The first buyable dip is likely to be bought by underinvested managers who didn't want to chase and sold out bulls.


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