On Friday, major averages closed near intraday highs on higher, above average volume due to Russell rebalancing with the small cap Russell 2000 leading the way. Earlier Friday, both the S&P 500 and NASDAQ Composite sold off then bounced off their 20-day lines.
Once a year, the Russell index provider makes rule-based changes to the composition of its indexes to account for changes in market value or investment styles. The rebalancing of the Russell caused some turbulence and spiking volumes as is typical.
Outside of that annual event, every time forceful selling has occurred this year, markets find their footing in rapid fashion so a meaningful correction has yet to occur. So far this year, the S&P 500 has corrected a paltry -3.3% while the NASDAQ Composite has corrected even less at -2.4%. While 2016 was one of the S&P 500's shallowest, dullest periods on record during the second half of the year, 2017 claims the all-time record. Volatility remains at record low ranges with the VIX typically between 9.5 and 11. QE is indeed a formidable force as major central banks continue to aggressively print.
Meanwhile, the market continues to deal with serious headwinds, namely the flagging GDP and jobs data, interest rate hikes by a hawkish fed, reduction of the Fed's balance sheet, and falling commodities prices as shown by the CRB index which has been in an overall downtrend since 2011, a reflection of sagging global demand.
So when stocks at times have seemed as if they're about to fall off a cliff, the QE pump comes to the rescue. That said, as we have discussed, a number of undercut and rally setups have occurred in some of our Focus List names when even mild corrections occur. There have also been the numerous volume dry up, or voodoo setups which enable one to buy a stock when it is trading quietly in constructive fashion, often before it moves higher. Keep a close eye out for voodoo setups in the coming days as we have discussed in prior reports.
There have also been a number of Luie setups emerging which occur when a stock sells off hard, then trades sideways in a constructive manner for a few days, forming an 'L' pattern. At this point, the stock may become actionable as a move to the upside in a number of stocks we have mentioned complete the 'U' in the LUie pattern.