Initially, stocks gave way to selling as the FOMC announced its rate decision during Wednesday’s market session. As Powell gave his press conference buyers began to step forward supporting the market. QQQs ended up closing near the highs of the session along with SPY. IWM closed in its upper half of its day range but didn’t see the same strength into the close. Volume was up across the board. A good sign for the market given the support. However, we’ll need to see it continue as we approach October and the US-China Trade Talks between the two economic superpowers. Not a bad session for the market overall. There are some signs in the repo market. However, currently the stock market has yet to show large cracks in its armor. Per our normal procedure we will continue to monitor the price action of the market and our portfolio as they will give the first signs of trouble. We can only trade the stock market in front of us not what we wish it to be. Regardless of what others may think we are laser focused on what is in front of us.
The concern over the repo market stems from Lehman Brothers prior to the 2008 crisis. Repo rates surged as they are now indicating there is trouble in the overnight lending market. Whether or not it is a reliable indicator it is interesting to see rates surge for simply lending cash overnight. Short-term rates are still running a bit hot. The 2-year Treasury Note yield sits just below the 10-year yield. All indications are the bond market is still hinting at a recession hitting soon. It will be interesting to see how the trade talks go in October and how the bond market reacts. So far, bonds still sit on shaky ground while the stock market is knocking at all-time highs.
AAII Sentiment showed bulls gained week over week ending at 35.3%. Bears dropped to 27.8%. Neutral respondents ended the week at 36.8%. The crowd is simply confused and certainly is not going to stick its neck out for the is market. Not that we can blame them. However, most do not have a solid risk management process in place to protect their downside risk. Protecting your portfolio against downside risk is vital to anyone’s success in the market. This is nothing new. Traders for decades have spoken about the value of cutting your losses short. No matter the method limiting your downside is the only path to success. We aren’t preaching anything special. Unfortunately, most cannot obey simple strategies limiting their downside and therefore are fearful of the market.
Where we go from here will be interesting to see. We are more than prepared for anything this market can throw at us.
