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Back to Caution August 3, 2019

Posted by Tom in Thoughts.
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Aug. 2, 2019 – Just 2 short weeks ago I titled this blog as “Caution”.  Then the market went to new highs; go figure.  And this past week, in just 3 days we’ve seen that cautious position pan out.  All it took was the FED to “only” reduce short term rates by .25% instead of the much hoped for .50%. And then a Trump tweet on tariffs put the icing on the preverbal cake.  I remember the old quote that “strong markets sluff off bad news, while weak ones quickly react”.   What I find strange is that we’re a little over half way through earnings for the 2nd quarter and they have been generally pretty good.  It must be nerves about the future.

 

In any case we blew through the early warning “3 bar reversal” level at 8771.  I note that volume picked up during the price drop but not to panic levels.  My inclination is that we’ll approach the next level down at 7812 for a shallow but quick correction.  Looks like the big guys “sold at retail” and are looking to “reload at wholesale” prices.  When we start to see strength returning in the Technology and Internet sectors that will likely be the bell weather that strength is returning overall.

Let’s look at the very broad S&P 1500 stocks to see how much damage was done:

Price Strength – Accumulation/Distribution – 

No doubt that the percentage of stocks in the index has taken a hit with over half below their 20 day moving average or very close to it.  The number in Accumulation or Distribution is much more even, leading me to think that this is likely a “normal” correction.

Short term sector strength is listed below:

No surprise to see Bonds and Defensive sectors showing the most strength.

I have lightened up on stocks that were showing weakness greater than the market and have reduced sector holdings.  Since news is driving this market one must not get to confident that everything will return to previous highs.  We may just flop around in a narrow range until after Labor Day.  And so we go “Back to Caution” for the time being.

Have a good week.  ………..  Tom  ………..

Price chart by MetaStock; pie chart & table by http://www.HighGrowthStock.com. Used with permission.

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