Once again weak price action prevailed across the market. Volume was higher across the board as market participants are selling down their holdings. There are a variety of reasons for this market decline, but remember we have yet to see a sniff of a proper correction since 2011. Some may say 2015 into 2016 was a correction and while it may be true we never saw a clear cut proper correction. Is this current market undergoing a proper correction? Time will tell and our focus should be on protecting our capital to have the dry powder necessary to capitalize on when the market turns the corner. Price and volume are our guide and while we can hope for certain market conditions we can only trade the market in front of us.
There are some bright spots in the market believe it or not. However, the broader market really is not cooperating with us at the moment. The long side of the market definitely provides us with growth in our account, but we are not going to be foolish enough to blindly go long in a bad market. We must wait for proper conditions to be right before we really get excited to hop back in. Do not mistake us the excitement really is an overstatement. It is more about the likelihood a trade will succeed. Odds are not in our favor and we run the risk of churning our accounts lower.
Fear continues to evade this market and it may be best described as complacency. The VIX index for one did not eclipse the mark set in February. While it isn’t necessary to reach the same level it did not come close to the highs. In addition, we still do not have any extreme negative sentiment readings. AAII continues to show bulls are still confident the market is going to be higher in 6 months. Bulls ended the week on the survey at 35.09%. Bears ended the week at 35.96%. An extreme reading would show Bulls nearing 20% and Bears above 40%. Maybe we will see an extreme reading soon.
Higher rates are certainly putting a damper on this market. Odds of a hike in December have eased a little bit, but show a 70% chance of a quarter point hike. A surprise to this market would certainly be the Fed not hiking, but all indications point to another rate hike at the December FOMC meeting.
Stay the course and remain patient.
