It is now the same old story. Price weakness continues and stocks simply cannot get out of their own way. Manufacturing declined for the first time in a long time. This sparked fears regarding a recession. Mind you we have not seen a recession in a decade. A reset would do the economy some good by flushing out the bad to make way for something better. Regardless, price action is weak and looks to remain weak for the foreseeable future. Until this changes we see no reason to be a hero in this market. Some will try but will end badly for them. For now, we will protect our capital and wait for better signals.
Certainly, the trade showdown on the 10th of October is weighing on people’s minds. Fear over more tariffs and continuation of the trade war is the top of the list. Will a recession really happen? For those who have forgotten about the economic cycle have forgotten recessions happen periodically. This is normal to have a recession. It is painful, but part of the cycle. How will stocks react? Now, we see price weakness. Unless the Federal Reserve drops rates drastically or starts a new Quantitative Easing program it is likely we see lower stock prices. Our time-tested process will help us move through this mess. Much like how we were able to take advantage of the reversal off the December lows of last year. We ignore the noise and focus on what truly matters. Wrap a risk management process around it and you have a recipe for tremendous success.
IWM takes the cake with regards to weakness. Clear as day sellers are hitting small cap stocks hard. SPY and QQQ both lost their respective 50-day moving averages. Volume was certainly higher in all 3 index ETFs yesterday. If Bulls were to have any chance, we would need to see the market stabilize over the next few days. Any further declines in heavier turnover spells trouble for stocks. Bulls cannot see further distribution. The stock market is to heavy now.
There are still over a week leading up to the meeting between China and the US regarding trade. We have no idea if a deal can be struck or not. One thing we would agree on is both sides do need a deal. A trade war does not suit either side. While both sides would prepare to dig-in and hold their respective ground it would come at a great price. We have no clue what a deal may look like or what terms would cause a deal not to be made. One thing is for sure, we should see volatility pick up as headlines fake or not will push stocks around. Stay nimble and focus in on price.
We are on very shaky ground. This storm will pass at some point, but patience and discipline will be rewarded.
