Despite the magnitude of Fridays decline, the odds of a new leg down appear to be remote. As stated many times, the internals of the market (as computed by Lowry research) are at odds with what would be expected in the early stages of a new bear market. Markets generally rise when buying pressure is strong and selling pressure subsides, and although the market is quite a bit lower than the June rally high, buying pressure is now higher and selling pressure is lower than it was then. With a seven percent rise from the July 2nd low, and with the market running into overhead resistance, last weeks correction was of no surprise.
The correction may still have to play itself out, but I think we’ll be alright, and would expect a new leg up to be initiated over the short term. If I’m wrong, the hedges should continue to keep us in the game until a new up market arrives.