Coming off Monday’s huge day bulls weren’t ready to support higher prices. Volume jumped giving today a big distribution day. VIX gained nearly 18%, but could not eclipse Monday’s high. However, the fear index closed above Friday’s closing level. The NASDAQ is clinging onto its 50 day moving average while the S&P 500 closed below its 50 day moving average for the 3rd straight day. Small cap stocks suffered large losses closing as the Russell 2000 closed below its 50 day moving average. September is not a kind month to stocks and we are seeing this play out over the first few weeks. This type of market action is precisely why we have our exit strategy. We are now in cautious mode after today’ reversal on volume.
Friday’s market turn was certainly one point in time. Even after yesterday’s action it was certainly plausible this market could return to new all-time highs. Today’s action has now shown us there is indecision in the market right now and our trend is on very shaky ground. Without proper position sizes and exits these past few days could have been very difficult for our portfolios and our psyche. We can rest easy knowing we have a sound strategy including a robust money management system.
Whether it be lower oil prices or a rate hike there are plenty of excuses as to why this market may head lower. Even today we saw headlines where pundits continue to stress monetary policy has done nothing to lift this economy. Remember, the stock market is not necessarily the same as the economy. At this point if the Fed is seen as continue its support for the market through low rates the market has a floor underneath it. Any challenge to this support is seen as a negative for the stock market. We cannot with certainty say how the market will react. Sure, if the Fed pumps free stimulus it will likely lead to higher prices. What we need to focus on is our process to identify potential Monster Stocks and ride them as long as we can. Nothing else matters. So whatever the Fed does or does not do we’ll always be hunting for our proven patterns.
What a wild ride for this market. A correction would not be a bad thing and it would go a long way to produce some solid patterns.
