China fears continue to mount as circuit breakers halted China’s stock exchanges overnight. US futures took a pounding all throughout the early morning. Today’s session once again proved why cash is king. At the close the market officially had its worse 4 day start. The start to 2016 is worse than the 4 day start in 2008 and 2000. Many will try to make a parallel to a big stock market crash here, but at this point no one has any idea where this market is about to head. There are not too many crashes in the history and while we cannot rule out one we cannot be 100% certain either. At this point our market model and process has kept us away from this terrible start. Just because this market is in a downtrend does not mean there isn’t an opportunity to increase the size of your portfolio. This market is in the danger zone and stepping away to let the dust settle is a prudent move.
There are signs all around pointing to a potential to rally here. Stocks below their 200 day moving average is at panic lows. Oscillators are pointing to oversold markets. Sentiment is heavily on the bearish side. AAII sentiment survey showed a big drop in bulls to 22.2%. Bears jumped to 38.3%, but failed to overtake those who were neutral at 39.6%. Not extremely bearish, but certainly very close. NAAIM managers actually increased equity exposure by 3bps week over week. I am sure their clients are not too happy with how they have performed. Our subscribers have known about our distrust of this market and know we were ready with a heavy cash position. Now, we wait for a potential new rally to start and our eyes are focused on what is holding up well during this rally.
Tomorrow we’ll get December jobs report. The non-farm payroll number will not be looked upon…not a chance CNBC and others will make it out to be the most important number after. After all it is the first number after the first rate hike since the financial crisis of 2008. As usual, we will simply allow the market action to dictate our portfolio moves. There is no need to be a hero and guess how the market will react. We will continue to find our intraday trades to enhance our portfolio returns. And when we have an opportunity again to get long leading stocks we will. In the meantime, we must stay patient and allow the market to come to us. Not vise versa.
Have a great weekend.
