The Coronavirus saga continues as new cases are confirmed along with new deaths. After yesterday’s rebound from Tuesday’s stall day Thursday will not get off to a good start. If we begin to see churning in this market it will be a sign this rally has lost its might and will likely see lower prices in the coming weeks. Tuesday’s stall day it’s a type of distribution day highlighting the need to have a risk plan in place. If we begin to see distribution pile up on this market a defensive posture must be taken. We are always at risk with headlines and it appears the Coronavirus is not yet contained. No one knows the outcome, but we can react to what the market is giving us in terms of price. Our time-tested risk management strategy will help guide us forward. There is no need to be a hero in this market. We’ll remain disciplined in our approach and take what the market gives us.
A quick note on sentiment and it has shifted back to a bullish lean on the market. Those who responded bullish over the next 6 months rose 7.5 percentage points to 41.3%. Bears dropped 8.8 percentage points to 26.4%. How quickly the tide has turned in the sentiment world. While neither are at extremes it would not surprise us in the least to see these go even higher next week. Seeing these numbers nearing extremes coupled with distribution would certainly be bad news for stock market bulls. We can’t trade off sentiment, but it is good to know where we stand. For now, while bullish we are not at an extreme just yet.
There are stocks nearing buy points, but we must be cautious given the recent price action. Majority of stocks tend to go with the general direction of the overall market. We are a bit long in the tooth with this rally and have yet to see a correction of 5% or more. It may be time we see a move back to the 50-day in the NASDAQ and S&P 500. The Russell 2000 is lagging and does not seem in any rush to get off its 50-day and back to new high territory like its peers. The lack of interest in Small Cap names certainly is telling and how money managers simply a fleeing to safety in large cap technology stocks. After the market crash of 2000-2002 who would have thought any technology stock let alone a group would be considered safety.
We will continue to chug along here managing our risk. This market is going to do its best to confuse as many participants as possible. It is our job to ignore the noise and focus on what truly matters when it comes to growing your account. Ignore all the noise and opinions. They do not help you win in the stock market. The pundits and gurus on CNBC and FOX Business are there to sell ad space nothing more. We hope you finish the week out strong and wish you good luck.
