From the Trading Desk

Correction Deepens as Dip Buyers Lick their Wounds

Sellers rejoice as stocks fall hard. Pundits are blaming anyone from “idiots” to higher interest rates. Volume was up across the board, but far from Monday’s level and not indicating a washout. We have been warning not to be in a rush back into this market. This type of action takes weeks’ worth of consolidation before healthy patterns emerge. The Dow was down more than 4% while the S&P 500 was down 100 points or 3.75%. Small caps performed the “best” down only 2.93%. At this rate, a rally may not emerge to the month of March. We prefer to stick with patience and allow this market to consolidate. Price action will guide us and given our risk management process our downside will be contained. Sit tight and be patient.

Sentiment did not fall as one would expect, but the number of bears popped to 35%. Bears dipped back below 40% to 37%. NAAIM exposure index ended the week at 56% a tick higher than the previous week. It will be interesting to see how people respond. Will dip buyers rush back into the market? Many will be looking for a low to get back in, but we know better. Best to be patient rather than guessing for a turn as many will lose a fortune trying to pick the precise turn. Stay patient.

We are going to be looking out for stocks displaying relative strength. Pay attention to stocks who are holding tight despite the overall selling. In order to take advantage of a rally you must be ready and to be ready it will take preparation. “Fail to prepare, prepare to fail.” This quote is very true in this market. Without the proper preparation failure rate is very high. Do not be caught flat footed and the inability to act when opportunities present themselves.

It has been a heck of a week in the market. This volatility will certainly lead to opportunities. We do not know when nor does any other market participant. Let’s focus and stay patient.

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