This week was a bit nasty, we saw a traditional fake-out
which caught many investors by surprise. In fact, even the daily
investment newspaper Investors’ Business Daily, which is usually pretty
good at getting a gauge of the market, on Tuesday changed their Market Outlook
from ‘Uptrend Under Pressure’ to ‘Confirmed Uptrend’, only to reverse their
decision today to ‘Market in Correction’.
It was a wild week for sure. From Monday to Wednesday the
Nasdaq rose almost 3% (in three days), then yesterday and today it sold off
hard … losing over 3.5% (in only two days). The small cap Russell 2000
did exactly the same thing, gaining 3.6% in the first three days and losing it
all yesterday and today. Leading stocks and technology oriented stocks
have been hammered over the past two days. This certainly is not what you
want to see in a healthy market.
The NYSE, S&P500 and Dow Jones have been holding up
better than the others, with all of them making a very small profit for the
week, BUT these indexes have done quite poorly since the start of the
year. This serves as continued confirmation from my previous comments
over the past few weeks that a defensive rotation was occurring with large
institutional investors clearly moving their funds away from riskier small caps
into larger (safer) companies.
All indexes have been struggling since the start of the
year, with the S&P 500 the only one that is eking out a small gain year to
date.
Are we in for a larger decline? Larger market declines
take time to start … usually a few months of iffy action before the market
finally tops and breaks to the downside. We could be going through this
‘starting’ phase right now, but it is a bit too early to tell.
I certainly don’t like this bifurcated market, where the
leaders are lagging and the defensively oriented sectors outperforming, but we
are at a place on the charts where I expect value-oriented investors to jump in
which should buoy the market in the short term.
We are sitting at the exact levels that previously acted as
support, and although it might be obvious to most traders … I expect another
bounce as a result. Over the past year, anytime the market got to this
level … we usually were at the bottom and a new up-move began, but time will
tell if the pattern from last year continues here.
One very unexpected situation in today’s market that is
unlike the previous declines over the past year. The VIX has been quite
tame over the past week, which is odd for sure. We do not use the VIX in
our trading decisions, but I do monitor it for my own confirmation since it is
so widely watched in the market. I have discussed the VIX in the past, it
is considered a good way to measure the sentiment of the market players and a
good gauge of fear in the market. With little movement during the current
decline, it would imply that investors are NOT concerned, which indicates
complacency. Is this good or bad, time will tell??
Resnn has been in cash most of the week. Our ‘One’ and
‘Medium’ term strategies began the week fully in cash, and stayed out of the
market all week. Our longer term strategy finally had its’ sell signal on
Monday, so we moved that strategy fully to cash on Monday afternoon as
well. With all of three of our strategies exiting the market, it is no
surprise that we had such a decline over the past two days. This
confluence of signals is a bit alarming for sure.
For now, we sit on the sidelines in the safety of cash.
Hope you have a wonderful and safe weekend.
Respectfully,
Randall Mauro
Resnn Investments, LLC
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