On July 9th, I wrote:
A correction in the S&P 500 to 5100 levels would not be surprising, and a correction in the NASDAQ to 16,200 levels would also not be surprising. Remember, I said that? The S&P 500 closed today at 5,186, and the NASDAQ closed at 16,200.
When I made that call on July 9th, the NASDAQ was at 18,429 and the S&P 500 was at 5576.
I also wrote, “Now is the time to think about taking profits.”
Chicken Little above says the sky is falling. While most realize that isn’t true, I do not expect a market crash. Today was a very ugly day. The whole way around, volume exploded to the sell side on every exchange. Now is not the time to bottom feed unless you are a long-term investor.
It would not surprise me to see some type of relief rally for the oversold conditions we currently have. I would not expect a lot (from a relief rally), and short coverage is most likely what is going to provide the majority of the short-term relief. Big institutional money is most likely going to be sidelined until the uncertainty (economy, election, war in the Middle East) is clearer.
This correction is not over, in my opinion. And I don’t expect it to be over soon.
Start making your Santa stock-buy list now. I will publish mine in the next 60 days (I hope).
The Small Cap Russell 2000
I mentioned in a previous post that small-cap initial rallies often last 4–8 weeks. We are 3 weeks into this rally, and trading on the long side with the current uncertainty is not something I believe is wise. Buying when more are selling is not putting the odds in your favor. Don’t be a hero, and try to catch something at the bottom. Because, remember the old saying, “Those that try to catch a falling knife get cut. There is too much risk with the current uncertainty, and the supply-demand equation is not in a buy-side trader’s favor currently. Risk outweighs reward. I will be a buyer to trade when the market begins to settle and the odds are in my favor. There are more sellers than buyers currently. My Santa stock buy list consists of several small-cap stocks. Which will I publish later?
Conclusion
This is currently a correction for now. That could change if the Federal Reserve does not come off the sidelines. I have been saying that, as I said the data was worse than the market was projecting. As of the current data, the economy has slowed, but we have not yet fallen into recession. What scares me; is all the lagging data. And if you (the Federal Reserve) are reactive and not proactive about lagging indicators, it could throw the economy into recession. I will cover that in a post soon.