Downside risks are still much greater
Markets inched up again today, extending last week’s move. As
many readers know, I have been skeptical of this rally for some time. I’ve been
concerned with things like breadth, the lukewarm action in breakouts, and
seasonality. This has led me to trade less aggressively than I would if my
market outlook were more bullish. If you’re like me then you may have found
yourself missing out on some of last week’s run-up. Don’t sweat it. Each day the
market rises it becomes more and more extended and due for at least a short-term
pullback. If you missed out last week, you paid the opportunity cost of not
being aggressively invested. Too bad. The worst thing you could do now is
compound the mistake of not being long then by chasing the market now. Let the
trades happen. Don’t force them.
The anticipated big market mover this week will be on Wednesday when the Fed
will meet and announce their stance on interest rates. It is highly unlikely
they will do anything to rates, but their comments have the ability to cause
some excitement. From my standpoint it appears that the market has already
rallied in anticipation of Wednesday’s good news. Even if the Fed paints the
perfect picture of a gently slowing economy and decreasing inflation, I don’t
believe that will spark a huge rally — although it could perhaps be good for a
nice one or two day move up. I believe much of the “goldilocks†scenario has
been priced in recently. Therefore, it still appears to me that the risks are
much greater to the downside than the rewards may be on the upside. At the very
least, I would suggest waiting for a pullback before getting aggressively long.
Best of luck with your trading,
Rob Hanna
For those who may be looking to expand their
knowledge beyond just market timing, my
Hanna ETF Money Flow System utilizes the VIX in generating trading
signals for spread trades.
Rob Hanna is the principal of a money
management firm located in Massachusetts. He has spent the last several years
developing and refining methods for trading in stocks across multiple time
frames. He selects stocks using both fundamental and technical criteria, and
then trades them using technical analysis techniques.