A wild week on Wall Street closed out with gains. Certainly, a good way to close the week despite not having volume higher. It was nice to see after the Distribution Day on Wednesday the broader market did not crater. While Thursday did see some further selling, we did not plunge lower. Futures are indicator a solid open on Monday and look to add to Friday’s gains. One thing we will be paying close attention to is how leading stocks act and if the broader market can close in its upper half with volume. We still have major headwinds from seasonality and geopolitics including US-Chinese trade relations. Anything is possible and we must be prepared for any situation.
Last week after Wednesday’s Distribution Day we were going to head much lower. When a Distribution Day occurs the day after a follow-through day the odds of the market going back into correction mode is 95%. While there is a sliver of hope we avoid new lows and this market resume making new all-time highs it isn’t probable. A good sign was certainly on Friday as we did push higher with solid gains. Monday’s session will have to build upon the gains but add volume to the mix. A strong showing of support for the market would go a long way in our book.
It is hard to believe the unofficial end of summer is almost here. Two weeks until Labor Day weekend and it feels like summer just started. Time flies when you are having fun. September and October are not the best months for the market either. We still have a few months before seasonality flips to be a tailwind for the market. Make sure you do get out and enjoy the last few weeks of summer!
Last week was a tough week for IWM. While the broader market confirmed a new rally IWM lagged. Unlike SPY and QQQ IWM traded below the low of the confirmed rally. Undercutting and rallying would be a positive, but we still see a lack of support for small cap stocks from this market. Institutions continue to flock towards the large cap technology stocks and continue to stay away from the Russell 2000 names. We are late in the cycle and fears of a new recession are certainly running rampant. Still, at some point we would love to see IWM lead once again.
We hope you had a tremendous weekend. While we remain cautious, we will take what this market gives us.
