Like a high-stakes battlefield shuffled anew, last week’s market action unfolded with historic magnitude even though the week began in disarray. Was it a historic charge…or a bear trap...for markets and the SPDR S&P 500 ETF (SPY)? Here are my thoughts, says Buff Dormeier, chief technical analyst at Kingsview Partners.
On Tuesday, nearly 99% of Capital Weighted Volume and Dollar Volume was to the downside — an overwhelming retreat. Yet just as it seemed the last soldier on Bullish Island had fallen, Wednesday, April 9, delivered a counteroffensive of epic proportions.
In perhaps one of the most dramatic reversals in modern market history, $120 billion of capital (single day CW $ Volume record) stormed into the S&P 500, while a paltry $220 million exited. With 7 million shares (single day upside CW Volume record) charging uphill versus just 500K in retreat, both CW Volume and CW Dollar Volume posted nearly mythical 99.99% upside days.
For the week, $430 billion traded hands — $230 billion in capital weighed S&P 500 inflows, a record, and $200 billion in outflows, a near-record itself. A violent churn of capital that, while alarming in isolation, may point to a more profound reshuffling beneath the surface.
Wednesday’s 9.51% one-day leap in the S&P 500 was the third-largest on record, behind only Oct. 13 (11.58%) and Oct. 28 (10.79%) of 2008. The Dow has a longer history than the S&P 500. It also joined the assault, surging 7.87%, and its historical precedence paints a more nuanced picture.
The Dow’s follow-through after 7%+ up days for those with shorter-term outlooks of three and six months has often been erratic. But for longer-term investors of a year or more, these dramatic up days have more often than not signaled a turning tide.
We continue to monitor the VPCI VW bottom formation — but this is no ordinary V or W. Historically, a VPCI W stems from two shallow V-bottoms. This potential pattern appears to be forming two, deep VPCI V bottoms — a rare phenomenon not seen even in the chaos of 2008.
As always, tactical risk management is the soldier’s shield and the investor’s defensive fortress. Here’s to you keeping your wits sharp, your positions agile, and your discipline unwavering.
