From the Trading Desk

A Solid Session as Stocks Take a Breather

Not a bad session for the stock market on Wednesday as the entire market closed slightly lower in lower volume. It is important at this state to avoid distribution, but also consolidate above the 50-day moving average. IWM performed the best yesterday as it has not been able to outperform as of late. The small cap group is the worse of the major indexes as it lives below its 200-day moving average. Investors are simply not flocking to small caps preferring large cap technology stocks as well as some old bellwether stocks. We would like to see this positive action continue from this market as it will help support higher prices in the coming days, weeks, and maybe months.

Futures are the moment are essentially flat leaning towards a positive open. Holding the gains, we saw on Tuesday is important. While we are in a seasonally weak period it does not mean this market can produce rallies. Expectations must be curbed and rules must be followed. We cannot underestimate this market’s ability to try and take away our gains.

Odds of another rate hike have been pushed out to June 2018. Hard to believe after all the rhetoric we have seen from the Fed has them raising rates much before June of next year. For a long time, the market was seeing another rate hike in March 2018 with a potential of a December 2017 hike.  Financials have benefited from higher rates, but how will they fare if the Fed pauses until late next year to move rates again? Time will tell and we’ll have price to guide us. For now, JPM and BAC as well as others remain in a long period of consolidation.

One thing that has toned down a bit has been the talk about valuations. The number of articles appear to have died down. Any new rally will likely have more written, but for now it seems as if the hysteria over HIGH valuations has calmed down. We do get the argument, but valuations are a terrible indicator in the short-term. Over very long-time period valuations do correlate well with stock returns. Remember, we are in a new paradigm with massive central bank intrusion into the capital markets. Anything is possible and we must have an open mind.

We hope you have a great day of trading today. Steady as she goes.

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