Wednesday’s market action comes off the heels of Tuesday’s surprise Federal Reserve rate cut and Super Tuesday. Politics aside, the presidential race should provide traders with cocktail party ammunition only. As price is our guide there is no reason for us to spend any time on the topic. The surprise rate cut was just that, a surprise. We discussed how far behind the curve the central bank is and even after the surprise cut still are. The Bond Market has priced in the high likelihood the economy will see some sort of recession over the next few months. Coronavirus is impacting the economy. At this point, how much is unknown, and we will follow price action responding accordingly. Wednesday’s market action was not a follow-through day despite what some traders may think. We are not out of the woods yet. Futures are pointing to a big drop this morning and until we experience favorable price action patience will be exercised. There is no need to rush into this market one way or another. Stay the course.
There were quite a few Twitter traders calling Wednesday’s action as a follow-through day. Their rationale was price gains and volume coming in above average. Historically, a follow-through day comes with a big price gain and volume higher than the prior day. While we saw solid price gains volume was not higher than Tuesday. Even with volume higher than its 50-day average we did not see big institutional players really accumulating shares at a higher rate. This illustrates where the average trader is and where we do not want to be. Wishing for a certain situation in the stock market is very dangerous. Regardless if its in the bull or bear camp we cannot act how we think the market should act. Caution should be exercised and curbing trading until odds in our favor is wise.
Sentiment has jumped on the Bull side, but the move did not come from those who were bearish. Bullish reading jumped 8.3% and Bears moved higher by .5%. The Neutral camp dropped 8.8%. At least we saw the Neutral camp dropped finally. Many respondents have been neutral for quite some time. Bears ended the week at 39.6%. Bulls ended the week at 38.7%. Neither show an extreme, but interesting there is a tug of war between those who have an opinion. We simply care the trend in the market. There is no need for us to have an opinion, but it does not stop others from having one.
We hope you are holding up in this market environment. Stay patient.
