The latest release of the Federal Reserve Open Market Committee meeting minutes sparked a nasty sell-off during the final hours of trading. Sellers were in a hurry to dump Small Cap stocks as the group continues to act very weak. Distribution is certainly elevated, but today’s above average volume sell-off certainly gives us some pause. Regardless if this market is over-valued we only care about price action and the latest bounce (one we have said to members it looks like a dead cat bounce) is merely a mirage and caution must be taken. Of course, the worse of it is in Small Cap land and it is quite telling most are risk adverse this stage of the game. We can only go by the market action and at the moment it appears as if we are going to head lower.
What happens next is what is most important and that is how we react to the given situation. Do we simply ignore it and do what we think is right? Or do we hunker down and follow our process with the necessary discipline and rigor? Of course, the answer is we do the latter. We will certainly look at our stops and adjust accordingly. New longs will be few and far between until improvements in the overall model are seen. While it is unfortunate to see the market so sluggish and looking to begin a downtrend there is nothing we can do to stop. Therefore, we’ll push forward and continue to act according to our process. There is no need to be a hero in this market environment.
We need to get to work and see where we are with our signals. We suggest you do the same.