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This week’s equity sell-off was damaging to many charts BUT we also view the pullback as a normal correction form overbought levels reached at the end of the week.

S&P sell-off from short-term overbought levels nearing important broad support band -The S&P 500, along with many stocks, notably cyclicals, were overbought at resistance heading into the beginning of this week. So, while we were certainly not expecting the intensity of Thursday’s sell-off, the S&P has pulled back to the upper end of a very broad support band beginning at its 200-dma at 3013 just above two important support levels defined by the retracement levels of the Q1 sell-off. The first is at the 62% retracement (2935) and the second at the 50% retracement (2792). Call it a band between 2800-2935 with the rising 50-dma at 2900, a reasonable proxy for the uptrend of the market. We expect that support band to hold on any near-term weakness, should it develop.

Short-term momentum indicators are still early in downturns from overbought levels reached last week. Normally, we would not focus investor’s attention on daily momentum indicators but given the unusual market environment and high volatility, short-term swings are materially impacting all portfolios. Most daily momentum indi...

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