After the sharp October and early November rally US stocks last week finally took a breather and broadly closed lower in what so far from the bigger picture looks to be an orderly pullback. If we dig a little deeper under the surface however last week’s drop also caused some decent technical damage that may cramp the style of the October rally more than what the bulls may admit to. Yes, stocks to tend to drop faster than they rally, but with its 3.60% drop last week the S&P 500 essentially erased a three-week rally in a few trading days.
As they say, risk happens fast. So you know, bullish sentiment from a host of institutional investors coming into last week was high and many investors I spoke to saw a pullback unlikely before year-end but rather foresaw the Santa Claus rally and magical pixie dust carry us higher in a straight line into early 2016. And so those investors that chased stocks higher over the past few weeks once again are left holding the empty bag.