The S&P 500 saw a decline of -0.95% last week, while the Nasdaq and Dow Jones also closed down at -0.8% and -2.2% respectively. Notably, Thursday, April 4 marked the second instance this year where two of the three correction criteria were active. An out of cycle note was issued to provide early awareness to the development.
Last week the correction criteria were described as flashing amber warning lights— signaling caution. When all three criteria are triggered, it serves as an alarm indicating a potential shift in the market's character. The amber lights are flashing into a week of inflation related data updates with the Consumer Price Index and the Producer Price Index happening mid week. Earnings season starts again with the banks (JP Morgan, Citi & Wells Fargo) reporting at the Friday open.
This week's note will provide updates on the correction criteria, along with a brief discussion on US small caps and Apple.
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Sentiment Check
The latter part of last week saw a moderation in market euphoria, although not entirely, as the market still closed in Greed territory according to the CNN Fear & Greed Index. This marks nearly five months of operating in a state of greed, a notable duration.
Correction Criteria
The three correction criteria:
Price trades below the short duration moving average (20 day exponential)— signifying the loss of the short term uptrend
Breadth turns negative— more stocks make new lows versus new highs
A concluding momentum interruption