The S&P 500 posted its biggest one-day decline so far in 2017 this week, triggering a fresh round of bullish table pounding, but the market may be headed into a mid-year correction that tests outsized gains posted during the four-month Trump rally. Equally ferocious losses in big tech and small caps have added to concerns that reflect a critical lack of buying interest as we head into the end of the first quarter
Wall Street analysts have blamed the rout on uncertainty about tax reform due to roadblocks faced by the Congressional health care plan, but that doesn’t explain three weeks of lower prices in banks, small caps, and transportation stocks. Those groups led the post-election rally and are now are telling the tale off an overbought tape that needs to shake out weak hands. They also identify sectors that should offer profitable short sales in an intermediate correction.
Profit-taking and higher cash levels are required adjustments to this less supportive environment, but targeted short sales should also work well as long as aggressive risk management techniques are applied. That may be tough to for most folks to accomplish in real-time due to the long-term uptrend, which should remain intact once the market rebalances overly bullish sentiment and high complacency levels.
) could offer more profitable short sales during a correction than a bank sector fund due to ongoing headwinds as a result of last year’s sales scandal. The vast majority of bank stocks broke out above 2015 highs in the fourth quarter of 2016 while WFC lagged, stuck under that resistance level. A February breakout attempt exceeded the 2015 high by less than two points, ahead…