The Easiest Mistake You Can Make in a Market Like This
Two issues are keeping buyers on the sidelines as the bullish Goldilocks economic narrative starts to fall apart.
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There were only four days of trading after the Labor Day holiday, but so far, September is living up to its reputation as the worst month of the year for the stock market. The indexes had their worst week since January 2022 and technical conditions suggest that there is more downside to come.
The S&P 500 filled the August 15 gap on its chart, but it trended down all day with nary a bounce and closed near the lows. The Nadaq 100 QQQ and big-cap technology were the laggards, with a loss of more than 2.5%. Breadth was more than 3 to 1 negative, and new lows expanded to the same level as new highs.
The highly anticipated August Jobs report wasn’t as weak as feared, and it looks very likely that the Fed will cut rates by 0.25% at its meeting on September 18. However, that didn’t help the market Friday. There was worry going in that a weak jobs report would increase the odds of a half-point cut, but the market is concerned anyway — even after the numbers weren't that bad.
The big problem isn’t the news flow. The big problem is that there are ugly technical conditions combined with poor seasonality. These two issues are keeping buyers on the sidelines as the bullish Goldilocks economic narrative is starting to fall apart. There are still many pundits who claim there is no danger of a recession, but the market appears to have some substantial doubts.
The good news is that some very good values are developing. The bad news is that they have lousy charts, and there is no way to know how close they may be to getting support. The easiest mistake to make in a market like this is to stare at the screen and keep buying new lows because you think things have gone too far. The market always overshoots in both directions and doesn’t care what you think may be reasonable.
There is a CPI report next week, but this market no longer cares about inflation. The issue is growth, and there will not be any new reports until the Fed meeting on September 17-18. Anticipation of a rate cut doesn’t seem to be motivating buyers right now, but that could shift if things continue to sink next week.
Have a great weekend. I’ll see you on Monday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
