Until there is some sort of definitive event, we are going to be in Trade War purgatory. There are a multitude of outcomes at this point, but it would be nice to get this thing resolved one way or another. Wednesday’s market saw stocks decline on declining volume (according to IBD). Certainly, we could be a lot worse shape given the economic backdrop. Does this mean we cannot see conditions worsen? Not at all and in fact odds we continue to face more selling pressure continues to grow. Anything is possible and we are going to be well prepared for any event coming our way. A sound risk management process will help us weather any storm and allow us to advantage of any upside. We are still on unstable ground with this uptrend and extreme caution is warranted.
Extreme caution does not mean sell everything and get levered short. It means we must have our stops in place capping our potential downside. Open risk is the risk we have if the worse case scenario happens. We must make sure our open risk doesn’t get out of hand. One way that it does is when you do not follow your rules of position sizing and exits. Too large of a position size and simply no plan to exit is a recipe for disaster. Avoid disaster and make sure you have robust plan in place. There is nothing worse than a 20% decline in your account or worse. Losses this deep take a lot of time to recover and with this market we have it may take even longer. Do not let yourself get to a place where losses get away from you ruining your hard-earned capital.
AAII Sentiment survey ended this past week with those who are neutral gaining more than 8 points week over week. Bears declined 3% to 36.1% while Bulls dropped 5 points to 24.7%. Not exactly an extreme level for Bulls, but certainly notable here. Those who are neutral continue to be high in the survey as it appears people have no clue whether the market will go up or down in the next 6 months. Perhaps they are finally becoming wise and do not care? We hope as we do not have a horse in the race in terms of Bull or Bear. We do not make predictions and therefore, would avoid providing an opinion as to the direction of the market over the next 6 months. Sentiment does provide a bit of context, but overall isn’t a strong indicator.
We are governed by price and price alone. Now, we are in a situation where price is on shaky ground and we are aligned accordingly. We hope you had a great week of trading so far and close out the week strong! Enjoy the upcoming long holiday weekend.
