Thursday’s session began how Wednesday left out. Sellers were dominating sending the overall market lower. It would not have surprised many people to see the market continue to sell-off and in fact many were expecting to see stock plunge lower. We expect anything can happen and simply react to what the market is doing in front of us. Most are unable to remove emotion from their trading and get sucked into the noise. Buyers began to win the day and quickly push stocks back into positive territory. Closing at or near highs of the day we saw stocks get support. Volume was lower across the board, but at least we did not crater further. If this market has any chance to recover, we will need to see this market build upon Thursday’s reversal. Never a dull moment in the stock market.
There is no question the short-term trend has been lower. IWM and QQQ have been leading the charge lower. Small caps stocks as measured by IWM simply have not been in favor for quite some time. Large cap technology has been in huge favor more recently, but as of now appear to be the ones being left behind. The geopolitical landscaped has caused a few issues for people and certainly raised the level of uncertainty across the world. Keep an eye on stocks that have held up. If we are to return to all-time highs the stocks showing relative strength will be the ones leading us higher. In the meantime, risk management is paramount in this type of environment.
Sentiment in the AAII survey has shifted to the Bears. This is no surprise really given the price action the past few weeks. The number of Bulls ending this past week was 21.4% down 8 percentage points. Bulls jumped 6.2 points to 39..4%. Bulls may be near an extreme but those who responded neutral is quite high. Historical average number of Neutral respondents is 31.5%. If we were to see Bears in the upper 40s would indicate an extreme level. NAAIM Exposure index dropped into the 50s at 57.39%. While not an extreme level either it shows many stock market participants are hesitant to be long stocks currently. As we proceed the importance of risk management and focus on quality will be paramount. Best to stay focused on what matters: Price.
Next week will be an interesting week with much fanfare leading up to the trade meeting between China and the US. We are sure headlines will move the markets and perhaps even Tweets. Stay grounded and focused on your trading process. There is no need to get caught up in the noise. We hope you have a great day trading on Friday and a great weekend!
