After some relentless selling the stock market has been able to stabilize over the past two trading sessions. Wednesday morning traders were greeted with falling bond yields sending stocks much lower. Sellers appeared to take over and we were in for another day of selling. Once bond yields began to recover so do stocks. Led by the NASDAQ 100 (QQQ) we saw the enter market lift off its lows. Volume ended higher on both the NYSE and NASDAQ. Solid volume during Wednesday’s session was an indication institutions were active in supporting the market on Wednesday. Trade fears remain now as the Chinese government allowed the Yuan to trade above 7 for the first time since 2008. There are still many hurdles the market must clear before we are out of the woods. At the moment, we have stabilized.
The market most certainly rushed to oversold conditions quite quickly. It doesn’t take much when the Dow is down nearly 1000 points during a session. Small cap stocks still are not in favor and continue to act the weakest amongst the major indexes. At some point, it would be great to see the group lead. Unfortunately, we just have not seen the appetite to take on the traditionally riskier group of stocks. At the end of the day we must go with the leading group of stocks. We cannot force trades that are not there. Our focus is to get on winners and ride them as long as we can. Forcing trades is a great way to churn your account lower over time. We will continue to focus on what matters most: Price and Risk Management. Everything else is just noise and will not contribute to the success of your portfolio.
Last week Sentiment was on the bullish side of things and this week we see quite the reversal. It should not come as a surprise to see Bulls flee and seek shelter in the Bear cave. Even those who were neutral jumped in. Bulls ended this week at 21.7% a 16.8% drop. A big time drop week over week in the number of Bulls responding to the survey. Those who said they were neutral at the end of this week: 30.1% a 7.4% drop. An amazing turn of events for the AAII Sentiment Survey. Bears were crowned king of the week at 48.2% a 24.1% jump week over week. A tremendous turn of events. Does this mean we automatically start a new bull market? No, certainly points to a potential bounce over the near-term.
We would love for a market reversal and resume hitting all-time highs. Bull markets are great at producing solid gains in your portfolio. Bear markets are a great time to study up. There are trades to be had but will be fewer and far between we suspect. We are not guaranteeing a bear market is what we are experiencing. Odds are not great for this market to return to glory just yet. Be prudent with your portfolio and always adhere to your risk management strategy.
We wish you a great day of trading!
