The stock market remains in a precarious position. While it is oversold, we are in a spot where anything can happen. Just because the market is oversold doesn’t mean it cannot get worse. At this point, with Trump adding new tariffs to Mexican goods the market is not going to be able to withstand much more. Perhaps the Fed will need to step in with a surprise rate cut. Odds of a rate cut have increased by year-end at the rate this stock market is going it wouldn’t surprise us one bit if we see a rate cut soon. Bonds continue to rally as stocks remain weak indicating the economy is slowing and traders are seeking safety. We will continue to execute our trading plan protecting ourselves against losses. This market is going to drive many people wild. For us, we time-tested process and are taking this in stride.
An interesting observation happens to be the lack of fear shown by the VIX. Given where futures are this morning, we see it explode. For now, the index remains relatively tame given how the market is acting. TVIX and UVXY have barely budged despite a bearish outlook with AAII and NAAIM. AAII Bulls actual increased by a tenth of a point to 24.8%. Those who were neutral dropped 4 points to 35.1%. Bears ended the week up 4 points to 40.1%. Again, AAII is not at an extreme level just yet in terms of Bears. However, we are at an elevated level. NAAIM Exposure index showed active managers have reduced their exposure to the equity markets as the index sits below 60%. While low in terms of this year just not at an extreme level. We are at a point where a bounce is likely to happen, but sustainable bounce back to new highs seems unlikely.
We will be ready for whatever the market has to throw at us. At any moment we could receive news the US and Chinese governments have agreed to a new trade deal. Will that be enough to push this market back to all-time highs is just a guess. Was the economy slowing and heading into a recession regardless of tariffs? Hard to say for sure, but tariffs are just another form of a sales tax. Americans do love to consume on a discretionary basis, but will their behaviors change with much higher prices? We do not know the answers and only worry about how price will react. We will maintain our rigor with our risk management approach. This is how we will succeed over the long-haul. Many will crash and burn simply because they do not know how to manage their risk. It is unfortunate, but how we can help.
We hope everyone has a great weekend and is controlling their open risk. We wish you the best in your trading closing out this week and the month of May!
