In my last post, “Got Volatility?” I proposed that the S&P 500 may be trying to establish a trading range between roughly 1800 and 2000, and that a successful test of the August 24th low of 1867, with fewer stocks posting new low prices, would be a sign of strength.
This morning we are down for the 7th day out of the last 8 and pressing down on 1900 on the S&P, which is now 10% off (including dividends) from its May high. This feels like the beginning of our test of the late August lows. Building a base in markets requires these tests of previous lows. In other words it’s normal at this point.
The biotech index is off over 25% from its July high. Biotech has been one of the last industry groups to roll over since the market started to weaken under the surface early this year. IBB, the biotech index ETF most widely followed, is currently testing $300, down from $400 in July. (The August 24th low was $284.) Fears of political pressure on product pricing seems to be part of the selloff, but much of it also seems a classic run for the exits by the momentum players.
We’ll be watching market internals as we continue this test of recent market lows. In spite of the negative news flow there are some hopeful technical signs that the market is starting to heal. In the meantime many of the price excesses are being purged as the market backs and fills. As well, we’ll be posting more frequently while the market is being challenged.