Thursday’s price action wouldn’t be too bad hadn’t we gapped up at the open and sold off the remainder of the day. Small Cap stocks led the decline and closed below its 200 day moving average. Not what you want to see from the index as it continues to lag the broader market. The index did hold above its 50-day its last line of defense. Leading the S&P 500 lower were healthcare names as the sector was nearly down 3% on the day. Drilling deeper it was Health Care Equipment and Supplies group down more than 4%. Names like ISRG were hammered during the session. What does this all mean for the overall market is not quite clear, but a warning signal by small caps. We are very late in this economic cycle and it would not surprise us to see the market reflect it with weak price action. While we can guess what the market will do next we’ll simply follow our price action and react accordingly. The future is unknown and we can only trade on facts. There are some warning signs and caution is warranted.
The S&P 500 and NASDAQ indexes have yet to consolidate in a reasonable manner since their December lows. Small Caps certainly have, but they have yet to prove they can run with the big boy indexes. Seasonality will have a hand in how the market moves next as we do head into headwinds. This does not guarantee we don’t see gains or winners during this time. The overall market may find it difficult over the next quarter to regain all-time highs we saw last year. Our best course of action is to control our risk through exits and position size. There is no need to take on unnecessary risks here. Let’s focus on a solid game plan and execute with flawless precision.
AAII sentiment eased off its bullish stance slightly last week. AAII Bulls ended the week at 37.56% from 40%. Bears crept higher from 20% to 21.83% showing more respondents are Neutral on the market looking 6 months ahead. Bears are certainly light, but the number of those who are Neutral is something else. More than 40% of AAII Members who responded do not think the market will be higher or lower over the next 6 months. Or could it be they have no opinion? We certainly do not have an opinion on where the market will go today, tomorrow, or 6 months from now. We do know sentiment is slanted towards the bullish side of things, but we are not at an extreme just yet.
Your risk management system is PARAMOUNT here. Do not enter a trade without knowing where you are going to exit. Cut your losses short! No need to let a loss ruin your account. We hope you have a great weekend!
