After Friday’s reversal Monday’s session is set to open lower extending losses. US-China Trade along with Hong Kong protests are what the financial media are blaming for the weak start to the week. While it may be true know why the weak start really is not going to help us trade these markets any better. Friday was a pretty good tell that we are going to remain on the weak side of this market for a bit. Let’s not forget we are in a seasonally weak part of the calendar. Certainly, another rate cut and/or US-China trade deal completing would help. However, at this point the market is weak and we are on the defensive. There is no need to fight this tape here and be a hero. Stay small and nimble as we fight through the end of Summer in this market.
One of the biggest factors regarding the economy is the inverted yield curve we are experiencing right now. Pretty amazing the yield curve has been inverted for quite some time. Last week we saw the 10-year Treasury Note fall below 1.7%. We had the self-proclaimed Bond Guru telling us just last year the 10-year was headed for 3.5%. So much for gurus. The 3-Month and 1-year are both yielding more than the 10-year. Bond yields are certainly predicting the US Economy is headed for a rough patch ahead. It would not surprise us one bit if we see the economy later this year slow down. It has been over a decade since we had a recession. What does this mean for stocks? Most would guess lower stock prices, but with our Federal Reserve anything is possible.
Your game plan should be defensive. There is no reason to be a hero fighting this tape. It will not get you very far. A prudent move would be to continue to search for stocks who are outperforming the general market. These stocks will typically outperform once the market rebounds. August and September are not great months for stocks and given our current client this appears it will hold true. October isn’t great either, but we tend to see good market bottoms. This is where we can take advantage where most people are worried about further losses while we take advantage of a new uptrend. It pays to not have an opinion, but to trade on price only. Most will be too far behind as they search for a reason to be long. We won’t and why we had such great gains coming off last December lows. We weren’t sitting around having a pity party like most. Ignore the noise and continue to focus on price.
It won’t come as a surprise if we continue to see stocks move lower. We have yet to experience a recession since 2008-09. Pretty amazing run and with the Fed hyper-sensitive seeing rates drop back to 0% isn’t out of the question. Are negative rates on the horizon? Anything is possible given our current climate. We will be prepared and ready for anything this market has to throw at us. Stick with the process. We hope you had a great weekend and a great week of trading.
