The current stock-market correction is still very questionable, and there's a higher risk to being heavily invested in stocks right now. Trading remains more random than not, and driven essentially by the news headlines of the day. For now, protection of capital is key.
The current stock-market correction is still very questionable, and there's a higher risk to being heavily invested in stocks right now.
Thursday, we see another low-volume, big-swing attempt to "scorch the shorts." The Standard & Poor's 500-stock index is trading into the key resistance level of 1,085. With the exception of the Russell 2000 Index, the other major stock market indexes (The S&P 500, the Dow Jones Industrial Average, the Nasdaq Composite Index) continue to trade below the 200-day moving averages -- and that's bearish territory. Wednesday's decline was distribution with higher than-average-volume on the New York Stock Exchange, but lower-than-average volume on the Nasdaq Stock Market.
The stock market is still more random than not, and driven essentially by the headlines of the day. For now, protection of capital is the best decision. We are looking for a confluence of key technical factors -- breadth, higher/lower volume, etc. -- before we would consider putting more long-term risk exposure in our portfolios. It's a matter of treading lightly here and let letting some short-sellers get “battle hardened,” as the case might be before increasing our long-term or short-term exposure.
Current economic indicators haven't produced a clear sign that the U.S. economy is firmly on the rebound, so the market will use any better-than-expected news to pound short sellers. However, there are a few recent economic developments that bear watching:
Economic conditions progressed, albeit at a “modest” pace, over the past eight weeks in all 12 Federal Reserve districts, according to the Fed’s latest "beige book" survey, released Wednesday. The labor market picked up slightly across the board, with permanent employment levels inching up in most regions, and inflation remains subdued. Consumer spending and tourism activity were strong points, as was net business spending. Non-financial services, manufacturing and transportation also gradually improved.
The Chicago Fed presented us with one of the shortest beige books in recent memory, but perhaps that’s simply because there is no substantial "new" news. Bottom line: The economy is growing, but at a snail's pace.
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