Earnings season continues to roll on. We are seeing continued overall positive news, while not tremendous growth we are not seeing earnings falling off a cliff. The soup de jour happens to be the health scare going on in China. While the flu virus here in the US has killed more than the Coronavirus the unknown with this “new” virus is where the fear is derived. We have no idea if this virus will kill millions or fade away. As airlines reduce or outright cancel flights to China it will be interesting to see how the stock market reacts. Energy prices have fallen as demand for fuel as flights get cancelled. Predicting the future is a fool’s game and while pundits will love to try, we are not interested. What will get us ahead is to follow the price action of leading stocks and the overall stock market. There is no need to be a hero or a smart pundit. We want to maximize our profit potential and our time-tested process is how we accomplish our goal.
Week-over-week we saw the number of bulls drop. We are not surprised by any stretch of the imagination given the news headlines. Bears jumped back above 30% to 36.86% for the week. Bulls dropped back to nearly 32%. NAAIM exposure index did not show active money managers dropping exposure at a big clip. Exposure did drop to an average of 77% from 94%. Sure, it is a big drop. Should we pay too much attention to sentiment? No. Simple answer, but until we see some sort of extreme from the reading, they are almost useless. Now, looking at cash stashed in Money Market funds is a bit more valuable as we continue to see assets pour into cash and cash like equivalents. Would money managers flock to money market funds if investors were overly exuberant? Price action is where the money is made and while we are consolidating gains from October’s run up, we have yet seen indications a stock market crash is around the corner
We are not predicting this market is going to return to new highs nor will it crash. We are going to react accordingly to our rules. We have an exit strategy to keep us protected as well as our position sizes. There is no need to trade just to trade. Patience will pay off over the long-term. This market is in consolidation mode and we must proceed with caution. There is no need to attach hyperbole with anything we do. Rules keep us ground and, in the game, ready to attack our prey. Anything keeping us from having dry powder is not something we want stick with.
We hope you had a solid week of trading and certainly hope you get to enjoy the upcoming weekend.
