What shall we use to fill the empty spaces where we used to talk?
How should I fill the final places?
How should I complete the wall?
– Pink Floyd, The Wall (1978)
Growing up in the 70’s and 80’s, I love classic rock music. Led Zeppelin, Lynyrd Skynyrd and Pink Floyd were among the “33’s” spinning on my turntable.
A few weeks back we had some friends over for dinner. Classic rock was playing on Pandora. One of my friends mentioned that the plane crash that took the lives of many of the Lynyrd Skynyrd band members happened in October 1977. As the words October and crash were spoken, I could not help but think of the downward route that was in play in the stock market.
The price action in the present-day market is not about filling a brick in the wall; it’s about filling a gap in the chart. The decline in the market was punctuated with the monthly low on October 29. Follow the October 29 low, there were two days in which the stock market “gapped up.” A “gap-up” day happens when the market opens significantly higher than where it closed on the previous day. It is not uncommon for gap-ups to be “filled.” Filling the gap is accomplish by the market coming back down below those previous gap-ups in order to ensure that buying pressure is consistent. The market decline early this month filled those gaps.
Despite a tough day yesterday for the broad market, there are a few glimmers of hope. Reasons to be optimistic include:
– More stocks on the NASDAQ exchange remain above their own 50-day average price compared to the lows of late October.
– Market breadth, while poor, does not appear to be getting worse despite this most recent leg down. The five-day total of stocks making new 52-week highs compared to new 52-week lows is not nearly as bad as a few weeks ago.
– The NYSE Common Stock Only Advance-Decline Line remains above its late October low, too. This means that there has not been further deterioration in the stocks on the NYSE over the last few weeks.
– The semiconductor index, which is a leading indicator, did not sell-off yesterday. In fact, it appreciated 1.6% yesterday.
Until proven otherwise, we still believe the low from October 29 will be “THE low.”
At this time of year, we are reminded that we are Thankful to have you in our life; and we wish for you a wonderful day tomorrow surrounded by those who matter most to you!