Volume ended the day lower across the board as the broader market ended lower. Small caps led the decline. Utilities continue to be a safe place for investors to hide as XLU continues to hit new highs. XLRE is not far behind. Worries over impeachment, trade deals, and recession persist amongst those who pay attention to the news media. We certainly acknowledge any one of these things is possible. However, we rather pay attention to what matters versus noise. It is best to pay attention to what matters. Price action isn’t spectacular, but it is not sending all out-sell signals. IWM continues to lag while SPY is holding up. Continue to be vigilant with your risk management process as we do not want to miss out on potential gains. Cutting losses and proper position sizes contain any downside allowing us to take advantage of upside.
We do not want to miss out on gains, but we also do not want to ignore downside risks. It is a delicate balance and one most cannot handle. The reason is due to emotion. Humans are emotional beings and in order to be successful one must remove emotions from trading. Those who do are successful as they focus in on price and install a robust risk management system. We harp on this point often because it is very important. We did not discover this way of trading, but certainly subscribe and promote it. We have found it to be quite lucrative. Come join Big Wave Trading and discover how to trade without emotion and win.
Somewhat of a surprise was the move the Bulls made in the AAII Survey. Bulls dropped below 30% to 29% week over week. The move was more than 6 percentage points lower. How quickly bulls were to flee this market. Bears jumped nearly 5.5 points to 33.3%. Neutral respondents ended the week at 37.4%. We can’t say the number of neutral respondents is a surprise given how the AAII survey has gone the past few years. Many simply are unsure. Not that we care too much, but it is interesting. NAAIM Exposure Index saw equity exposure drop too. Active managers lowered their exposure to an average of 64.85%. There were still quite high bullish bets, but for the most part active managers reduced exposure. Let’s not forget the last week in September is historically bad. There are quite a few people on the sidelines.
We have seen many traders jump to cash given what they have seen from the market. While we understand why one may do so, but it is an emotional response. Look, seasonally speaking it is a weak period and if you were heading out on vacation, we get it. However, simply moving to cash because you are unsure of the market is a sign you must review your trading process. Are you relying too heavily on emotion? We reckon you might be doing just that. Re-evaluate your process and remove emotion. Focus in on what is rather than what might be. Your trading will improve.
Trend Followers are having a great year this year. It has been tough sledding for a while now. Check out their performance here.
Two days left in September and we begin to see seasonality shift. 2018 bucked the trend, but 2019 is a new year. We hope you have a great day and a great weekend ahead.
