Is the sell-off real, or another headfake?

The market rebounded nicely and recovered almost all of its losses from earlier in the day.  Many leading stocks also showed similar resilience and refrained from turning into a cascade of panicked selling.  In fact, much of this recent pullback has been far more controlled and orderly than anything we have seen in quite a while.

So now we need to figure  out what this means and how it affects where we are headed.  Is this stability a bullish sign that people are not rushing for the exits and supporting the market?  Or does it further reinforce the complacency argument and shows people are no longer afraid of a pullback?

By itself, this could go either way since on the surface it seems as bullish as it is bearish.  But when we start bringing in other factors, such as 14-weeks above the 50dma and the best first quarter in fourteen-years, it really starts to look like we have come a long way and the market often rests after such moves.  Also, the start of a new quarter often ushers in a new mindset among professional money managers who spent all of last quarter chasing a runaway market.  The aforementioned factors seem to tip the balance in favor of the bear camp, and if this is the case, any strength should be used as a selling opportunity.

Getting back to the prior discussion of nervous selling versus real selling, does the recent sell-off feel like nervous selling?  And if it isn’t nervous selling, then by default doesn’t that make it real selling?  And real selling is what we need to be most wary of.

And as always, I reserve the right to be 100% wrong on this.  The stock market is far from an exact science and anyone who claims to have a crystal ball is both a liar and a fool.  The market is largely random noise and it could go either way on any given day.  But by trying to understand the inner workings of the market and what drives its participants, the more it pushes the odds in your favor.  Any individual market call is largely luck, but the better you understand the market, the luckier you’ll tend to be.

Stay safe.