So, the markets sold off the last two weeks of August and are now trying to form a base above the lows of August 24. On that day we had another flash crash that took most stocks and indices to extremely low prices that vanished after a couple of minutes, with prices settling significantly above the day’s low but still substantially down. As an example, Apple traded between $109 and $92, closing at $103. Blame the algorithms for the extreme lows.
The S&P, NASDAQ and the mid caps are all off about 8% from their highs of this past spring. Biotechs are down 12.5%, tech sector down 10% and oil and gas sector down 23% from this spring but down a total of 36% from the spring of 2014.
Our view is that the major indices are trying to establish bases between the lows of August 24 and the rebound highs of August 27 and 28th. On the S&P that would be roughly between 1800 and 2000. At the moment I am typing this the S&P is at 1969.
A substantial breach of the August 24th lows would be cause for real concern, whereas a successful test of those lows, with fewer stocks posting new low prices, would be a sign of strength.