I don’t have much to write about today. The market is following through on the market pullback that has been in motion since last Friday, according to the writer below.
- Last Friday, we saw the S&P 500 tick at all-time highs for a few seconds. That’s anything but unexpected and certainly not newsworthy. What was “different this time” was that it was the only major index to score new highs before they all reversed sharply to the downside. That made calling for an overall market pullback fairly easy.
The above is not why I suggested the market would begin to pullback. For me, it is much simpler – the market moves in cycles. Going back over these past few years, one can easily see that almost every time the market achieves new highs, it rebalances.
The signs are always there. The VIX climbs a bit, the bulls lose energy at the end of the trading day, and the bears gain momentum volume wise as traders begin to cash out in order to gather cash for next buying opportunity. This is the way it has been and this is the way it most likely will continue to be, as long as the current economic and earnings environment exists.
It is not always the case, but most times I can tell when a market shift is coming based upon the stocks I like to trade. Primarily, my trading portfolio consists of stocks under $10. This is not to say I don’t trade stocks above that, I do, but I find the biggest bang for the buck comes when a small-cap stock rises quickly. I can buy a lot of shares, and as long as the volume is there, I can liquidate easily. This is not my point, however.
My point is that when my trading portfolio begins to wane, meaning the price-action falters, it usually means money is moving out of the less sure thing, the small-cap arena. This began to happen a few days ago and it is happening today. Hence, this is why I wrote on Monday, “We might be in for a minor market correction [this week] if the data is weak or otherwise not overly positive.” Last Friday’s price-action was a clue for technicians, but my portfolio was a clue for me.
Other than the above, I only have one more thing that offsets the minor “blues” I have about the market correction. I say “blues” because when these pullbacks occur, the arduous wait for them to end begins. True, I will buy in the midst of them, if I see a buy, but, generally, I try to wait for the bottom, and, as we all know, finding a bottom or top before they actually happen is tough. So, I watch and wait, watch and wait, watch and wait …
- The Philippines and its largest Muslim rebel group, the Moro Islamic Liberation Front (MILF), on Thursday signed a final peace pact, ending about 45 years of conflict that has killed more than 120,000 people in the country’s south. The fight against Muslim separatists and Maoist guerrillas for almost five decades has stunted growth in resource-rich rural areas, besides scaring off potential investment in mines, plantations, energy and infrastructure.
I don’t know how the above plays out for me as a trader, but it is worth my time to find out what the newly-minted peace might bring to a country so resource-rich and so tightly bound to Asia’s emerging economic framework. Now, the work begins, which will also help with the market pullback blues …
Trade in the day; Invest in your life …
