It’s important to keep an open mind when evaluating the stock market. It doesn’t make sense to always be Bullish or Bearish because the market is not always in an uptrend or a downtrend. Simply do your homework, look objectively at both the positive and negative signs, and invest accordingly. That being said, let’s review the market’s recent action.
1) After going through my weekend stock screens, I am finding VERY FEW quality setups. The severe technical damage in most charts tells me the market needs time to repair itself.
2) The 2-day rally last Thursday and Friday (8/11 & 8/12) occurred on lighter and lighter volume, showing me very little institutional participation.
3) The main sentiment indicators showed an INCREASE in bullish sentiment last week!!! After the recent beating, I’m surprised to see more complacency and not more fear.
1) There are a FEW stocks holding up well, however, it’s not worth mentioning them because 4 out of 5 stocks move in the market’s general direction. We are in a downtrend right now and I don’t want to fight it.
2) The President and many members of Congress are seeking re-election, and will do whatever it takes to “prop up” the market. The only problem is they’re all on vacation.
I remain in 100% cash since I mentioned A Few Words of Caution on July 26. I only like to expose my capital during SUSTAINED uptrends. Sure, the market could bounce for a few more days, but unfortunately, I feel we are headed lower over the near-term. I am mainly basing this on the weak price action of stocks and the lack of quality setups. It’s best to protect your capital and confidence until market conditions improve.