From the Trading Desk

Stocks Rebound after Post-Fed Hangover

Yesterday’s end-of-day rally was quickly erased as sellers returned during the first part of today’s trading session. Early in the session Monday’s lows were challenged. The S&P 500 and NASDAQ both could find buyers at their lows. Volume was lower than Wednesday’s turnover, but price action was good enough. At this point, we are likely going to bounce around and move sideways. Not necessarily a bad thing, but the NASDAQ needs to continue to cool off after a tremendous run. The Dow is showing no signs of pulling back just yet while the S&P 500 is in a consolidation pattern now. We do have distribution, but for now we are seeing lows supported. If we break these lows then we may have something to worry about. Until then, we will continue to operate on the long side. Heading into the weekend we will continue to protect our downside.

Sentiment hasn’t changed much even with last Friday’s decline. Investors are mostly neutral and it has been a trend we have seen for much of this uptrend. NAAIM exposure index is above 90% meaning active managers are quite long this market. The individual investor continues to miss out while the active manager appears to be hanging in with this market. Quite the development. Will the small investor finally jump back into the market? We have yet to see it.

Perhaps a reason for the small investor to be on the sideline is certainly articles stating how overvalued this market is. Do not get us wrong there is no denying by either Price-to-Sales or Price-to-Earnings this market is overvalued. One thing we are not seeing is any article or news report suggesting these high valuations are justified and should continue. It would a bit different if rather than being bombarded with how this market cannot support these prices to something the opposite we’d think differently. At any time, we could see this market turn. We have our stops in place to protect ourselves if this might occur, but given this market is still the most hated there is no reason we won’t see more new highs.

We hope you have a great weekend.

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