Market is in correction as we stated last week, selling continued in fast trade
Middle East fears helped push crude above $100 a barrel while sellers were busy taking stocks lower in heavy volume trading. Despite the positive open it wasn’t too long before selling got underway as a lot of market leaders were hit with selling. Leading the charge lower was the Russell 2000 as small caps continue to suffer from the recent selling. Not too far behind was the NASDAQ as both indexes continue to demonstrate extreme weakness. It is quite clear we are seeing a market correction unfold in front of us and today was just another example of such weakness.
Even in the final hour the market failed to see buyers step in and support stocks. Normally, during a bull market we’d see stocks find support at the end of the day. Buyers weren’t around to help out and left the market to the sellers. Stock market trading isn’t for the weary, but given the price cues during the past few weeks have shown how weak this market is. This is not to say this correction will lead to a total meltdown in the stock market, but it isn’t unreasonable for a prolonged correction. Nobody knows as the future is uncertain, but given the price and volume action of stocks we know with some probability where the market is headed.
Many bulls will be quick to jump to “buy the dip.” It is an interesting strategy and will work, but when do you know at what dip to buy? If you bought at today’s low, what if we go 20% lower? 30%? Remember, during the late 90s there were a series of 20-30% corrections and while buying at those lows was sound at the time it was very difficult to be certain the lows were in. Precsiely why we trade strength and not weakness and will use probabilities and money management skills to maximize our portfolio’s potential.
Tomorrow’s economic news will be highlighted with the mortgage applications, challenger job cuts, ADP Employment Change, and the Federal Reserve’s beige book. Given the price action from the market up to this point, any strength will most likely be met with embolden sellers. Do not trade off emotion, gut feels are notorious portfolio killers! Remember to cut losses short and let winners run.
