Tuesday’s session was not what you want to see following the session like Monday. Tariff tweeting once again spooked the market as a potential deal on trade with China is still up in the air. At some point a deal will be struck, but there are so many questions left to be answered the market is most certainly going to be on edge. We are seeing this story play out where futures are currently (7:30amEST). It is no surprise with the instability from a lack of trade deals and threats of tariffs the unknowns are causing the market to drop. While the volatility may appear to be threatening this is how we are able to extract more gains from the market. At some point, a healthy new uptrend will emerge and we will be ready with dry powder to attack. In the meantime, we will continue to work our price signals and execute our risk management strategy.
Prior to Tuesday’s market there were some positives developing as one might expect after a nice move off the lows. However, Tuesday’s action put quite a scar on the uptrend and given where this market may open this morning could put a dagger into the heart of this current confirmed uptrend. This is why we stress the importance of having proper position sizes, exits, and not chasing a stock higher. Those who chase stocks well above a proper entry point will suffer many setbacks. “Buying right” and having a sound risk management process will ensure you, as a trader will maximize your profit potential. There is no reason not to know where your exits are and ultimately how much risk you have on the table at any given time. It is best to find out immediately if you do not.
Odds of a rate hike in December have come down a bit, but still remain above 70%. The 10-year treasury sits at 2.89% and it appears investors are pushing back into bond territory given the issues surrounding the equity market. We’d also like to point out that we do have a slight inversion in the curve. The 2 and 3 year Note is trading ever so slightly more than the 5 year. Does this mean the market is doomed? Not necessarily, but given what has transpired in the market since the beginning of October may be foreshadowing a bumpy ride for the economy in the spring.
Sentiment was in the favor of the bulls this past week and given how the market rose off the lows it is no surprise the AAII Survey showed the bulls jump to 38% while the bears dropped to 31%. We shall see how the group responds next week, but if this selling continues perhaps we will see some real capitulation from market participants. We hope you close this week out on a positive note!
