While we are not going to issue an all-out sell signal, Tuesday’s distribution day should highlight the need to have an exit strategy in place. While the Russell 2000 as measured by IWM inched out gains the broader market did not and ultimately ended the day in distribution. Internals weren’t great with decliners lead and volume on the downside was larger. Will this lead to correction of some kind? No one knows the future, but what we can do is act accordingly and keep our risk management process in check. Earnings season continues to push forward, and we should begin to see a bit more volatility in individual names. Be sure to know when your holdings report earnings or any potential trade. Tuesday’s trading wasn’t too terrible. However, the internals certainly are leaning towards some choppy waters ahead. Be prepared.
Just because there might be a correction does not mean this market will roll over into oblivion. Last week the AAII Investors Sentiment Survey showed Bulls inched higher. The survey was not overwhelming bullish. Same goes for the NAAIM exposure index while higher the index is not at an extreme or even at 90%. It is close, but just not there yet. A small 3-5% correction would help alleviate some overbought conditions and healthy for the overall market. This is how bull markets operate. We would advise you to ignore the talking heads on tv and pay attention to the price action of the market. Everything else should be considered noise and not worth spending your time on.
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Interest rates have crept back higher as of late. Hopes of a rate cut have subsided at the next FOMC meeting. The next meeting is at the end of this month and expectations are the central bank will likely hold steady on rates. We would expect them to have language regarding trade deals and support for the market, but overall holding steady on rates. We’d think by the time September rolls around our situation will likely be different and odds do favor a rate cut at some point soon. We are not in the predicting business, but rather focusing on the information we have in front of us. Judging by XLU holding up investors are trying to position themselves in the event the central bank cuts rates.
However, the market reacts to the FOMC rate decision we’ll be ready to do what is necessary. Price is our guide. Our risk management process keeps us in the game by keeping losses in check to maximize our profit potential. Losing out on big gains will hinder your ability to grow your account substantially over time. Good luck with your trading today!
