From the Trading Desk

Treasury Yields Jump as Stocks Sputter

We have had a busy week with this market between earnings, the fed, state of the union address, and now the jobs report. For the most part, this market is holding up well. However, it is under pressure with distribution creeping higher. Major indexes have had a tough time holding onto their 10-day moving averages. This market has been plowing through no matter what has been thrown at it. We really haven’t seen a decent correction since the end of 2015 into the start of 2016. Brexit was a hiccup and even the 2016 election was a minor blip on the radar. It has been nearly two years since we have seen anything resembling a correction and if this ends up turning out that way we will embrace it. Our way is not to call a market top, but simply go with the trend of the market. Exits are in place to protect us from the downside and we will react to what the market gives us.

Sentiment continues to run on the bullish side and why not. It is no surprise many traders are bullish given the rise of this market. AAII bulls continue to remain above 40% and the bears 30%. We are not seeing any extreme readings like we did a few weeks ago. NAAIM exposure index mean reading has come back into the 50s as active managers reduce exposure. We simply want to be on the prevailing trend. Regardless if it is bullish or bearish we will simply stick with the trend reacting according to our rules. While simplistic in nature, it is very difficult for most to execute this plan. In the end, it is those who ride winners and take small losses. It isn’t rocket science and it certainly is nothing new, but for some reason traders ignore this golden rule in hopes they will make huge sums of money.

At the end of the day here we can only take what the market gives us. A solid correction to the 50-day or even the 200-day moving average would be a great start to reset bases. It would not be out of the ordinary and would set up tremendous opportunities down the line. We should not forget odds still favor this market being higher by years end. Let’s not lose sight and get sucked into the land of the bears. A correction would not be that bad and may turn out to be the best thing for this market.

As we head into the weekend we are going to take this market in stride. There is no need to be a hero in this market shorting everything or even trying to buy the dips. Stick with your plan. We hope you have a tremendous weekend!

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