Why Tuesday’s loss was bullish, but it still doesn’t matter

Free After-Hours Analysis: 

Tuesday was a mixed session for the S&P 500. The index opened with losses and the one-way selling knocked stocks down more than 50-points in midday trade.

The CDC reversed its guidance and now these alleged experts tell us vaccinated people should resume wearing masks in most of the country due to the pervasive Delta variant.

While this is a flip-flop from previous guidance and wearing masks is most definitely uncomfortable, this announcement was not an economic development. As we have seen over the last 12 months, mask-wearing is not a meaningful economic deterrent. The stock market rallied nearly 100% from the Covid lows while everyone was wearing masks and a return of those policies won’t make a difference to the stock market. Consumers (and investors) still have money burning a hole in their pockets and they will continue spending it regardless of their mask status.

And unsurprisingly, it didn’t take long for cooler heads in the market to prevail and the index bounced decisively off of those midday lows. Prices still closed in the red but they recovered more than half of those early losses and that resilience is considered a win for the bulls.

As I’ve been writing over the last few weeks, this remains a strong market and owners remain stubbornly confident. That is keeping a floor under prices and decisively rebutting things like last week’s selloff. But at the same time, we’ve come a long way and some sideways consolidation is long overdue.

The most important thing to remember about sideways consolidations, all of the ups and downs inside the consolidation are totally meaningless!!! Things will get more interesting this fall when big money managers return from summer vacation and start adjusting their portfolios ahead of year-end. Until then, these daily gyrations don’t matter.

The lone exception to the above analysis is if the index falls under last week’s lows. Slip under 4,250 and all bets are off. Until then, “this ain’t nothin’ but a thang.”

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