The NASDAQ gave back all its previous day’s gains and more and closed down 405 points to 17,194 and the S&P 500 did the same, closing down 75 points to 5,466. Both were terrible days, as volume was approximately the same as the day before (above average) EXCEPT today, the volume was on the sell side. The money is being made on the short side of the market. I do short when the time is right but shorting is only for extreme risk-takers and those that have strict rules in place for their trading. That’s for a later date; now is a time to raise cash.
I also explained yesterday’s gains were nothing more than a relief rally from oversold conditions and short covering today’s deep plunge confirms that in my opinion. While there may be relief rallies in the short term, take any opportunity you can to raise cash levels, I’ve been saying that for 3 weeks. There will be a buying opportunity but it certainly isn’t now! I’ve said for weeks this is a sell-on-the-news earning season and it’s proving me correct!
The Small Cap Russell 2000
The small Cap Russell took an absolute beating yesterday. Closing down 68 points to 2,186 or 3.03 %. As I mentioned yesterday, it’s time to be careful. Although the market “thinks” the Fed is going to lower rates. He didn’t send a clear signal. THAT CREATED UNCERTAINTY. The market hates uncertainty. Without a definitive statement on his position (he only hinted of a rate cut) It looked like traders were hesitant to commit, which was obvious as the small caps lagged the gains of other exchanges yesterday and dropped nearly 40 points after The Fed’s news conference. Personally I’m on the sidelines waiting for the new buying opportunity. This will occur hopefully in the next 50-90 days.
But the problem that occurred yesterday.
The problem that occurred yesterday was the market shift. I warned you of this on July 21st. I wrote: Right now the market is taking good news as good news and bad news (economic slowdown) as good news. A shift in taking bad news (economic slowdown) as bad news would deepen this correction that began a few weeks ago. (Remember that).
That occurred yesterday. The initial jobless claims came in worse than expected. Although it was worse on the outside looking in it wasn’t as bad looking from the inside out. In my opinion it was worse due to seasonal factors. What also scared the market was the plunging manufacturing report. It was not a good report. I have mentioned in previous postings that I believe the Fed is behind the interest rate curve. Economic activity is a lagging indicator (meaning it doesn’t show up for months. Institutions are taking profits. You should also. The market psychology has changed in the near term and I see it unlikely to change before the election in November unless the polls show a clear cut winner. And I don’t think the anticipation of a rate cut in September can change the current market psychology because the Federal Reserve’s statement showed no definitive answer on a rate cut. In addition, where the economy will be comes into question. I mentioned that also weeks ago. And now the market seems concerned. But for now it seems the economy is moving along just O.K. As I mentioned earlier, if the Federal Reserve does not start cutting now there will be major problems in the economy in 2025.
Note: Amazon is going to take a hit today based on forward guidance and the cautious consumer. This is a sell on the news earnings season you can either join them or endure the pain.
In my opinion, the economy is not in trouble YET. But a failure by the Federal Reserve to begin to lower rates could present a hard landing next year and force him into a place where ½ point interest rate cuts become necessary. We are not there yet but the Federal Reserve needs to come off the sidelines SOONER than later