Monday’s session was a good start to the week with the Russell 2000 leading the market higher. Volume was mixed as NYSE volume ended the session lower while NASDAQ volume rose from Friday’s levels. From a seasonality standpoint we are up against headwinds as we progress through the 3rd quarter. The S&P 500 sits just below its all-time high with the help from Consumer Discretionary, Information Technology, and Financials. Financials having yet to recapture their highs set back in January, but appear to have stabilized for now. At the next Federal Reserve meeting the market expects the central bank to raise interest rates by another quarter point. There is a slim chance they hike by 50bps, but highly unlikely as we have yet to see the Central Bank hint at anything more than a quarter point. All we can control at this point is our actions and how we react to price. Sound risk management principles and following price action will enable us to extract as much as possible from this market.
No one knows when the next major correction is going to rear its ugly head. Most are looking for 2008-09 to happen again, but it is highly unlikely to see something of that magnitude any time soon. Anything is possible, but most “generals” like to fight the last battle and not the one ahead of him. We are in unchartered territory and we must use price as a guide. This market may very well continue to push higher without any proper correction. This past February we did see some resemblance of a correction, but it didn’t last long enough and certainly wasn’t deep enough. However, it is what we got and we can only trade the market we see in front of us. Trading a market you’d like versus the one you have will only lead you down a rough path. Set your emotions aside and focus on what is in front of you versus what you want to be in front of you. Your trading will improve immensely.
For all the trade talk it is something to note that the S&P 500 is within 1% of its all-time high. The Shanghai Composite sits just above its 3 year low. There are other measurable to take a look at, but the most obvious is the stock market. At some point the US and China will come to an agreement much like the EU and US did. Will it produce a huge, mega stock market rally is anyone’s guess. It could even trigger a sell-off. No one knows. We will continue to focus on our portfolio by reacting to price and nothing else. We’ll let others focus on the cocktail party small talk. Our purpose is to maximize our profit potential and limiting our downside. It is not to impress a few people.
We hope you have a great week of trading.
