Here Is My Approach to This Challenging Market Environment
The market is in transition and needs time to figure it out. Here's what to do as that happens.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
As the market enters the seasonally weak months of August and September, the one thing that is clear is that there is a high level of confusion and uncertainty. The economy is shifting from worries about inflation to worries about growth, and valuations of the leading big-cap technology names are being reassessed.
Technically, the indexes are uniformly weak, and there is little leadership from key stocks. For a while, it looked like the market was ready to rotate into the broader market, with the Russell 2000 IWM leading, but that has fizzled out. The IWM is now up less than 2% for the year.
Last week's burst of volatility shook things up, but it was probably not sufficient to provide a foundation for a new uptrend to emerge. At this point, the likelihood is that there will be retests of recent lows that may or may not hold. There isn’t any potential news flow on the agenda that is likely to rally the troops.
The market is nearly certain that rate cuts are coming in September, but that isn’t necessarily a big positive. It is an admission by the Fed that it has succeeded in slowing the economy to battle inflation, but the problem is that once the economy starts to slow, it can gain downside momentum quickly.
What to Do Now
The best course of action currently is to not try to predict what the market will do next. The media is filled with the usual pundits and experts who will offer their insights, but these a just guesses, and many predictions will be very wrong.
The best approach is to wait for the price action to offer better insights. When market conditions improve, we will see this in the charts: a better support level, breakouts from bases, and stronger momentum.
If you run through hundreds of charts of individual stocks right now, you will find very few with good technical setups. There may be some near lows, but there are few strong uptrends, and the danger of giving back recent bounces is quite high.
In this market environment, I focus more on actively trading names that I like longer term. I have higher levels of cash and will not rush to build larger positions right now. As always, I keep hunting for new ideas, but if I find some, I’ll keep initial positions small and time frames short.
This is not a market that should be trusted right now, and it is important to avoid predictions from overly confident pundits and experts. The market environment is undergoing a transition, and we will have to wait for the process to play out.
We have some minor strength on Tuesday morning while investors await the PPI report and earnings from Home Depot HD.
At the time of publication, Rev Shark had no positions in any securities mentioned.
