Stocks Struggling In September

The biggest question the market is facing is whether the recent struggle will turn into something a bit more sinister. The long rally from the COVID-19 lows has been quite impressive. Many traders and investors alike were doubting the Fed action would do much to stem the wave of selling. Fears of a multi-month potentially longer economic shutdown scared the crowd leading to the decline. We now know more information and the situation has changed. However, we now face a presidential election and repercussions from the Federal Reserve actions earlier in the year. Where we end up a few months from now is anyone’s best guess. No one predicted the 2016 presidential election and we’d advise avoiding the temptation to predict what happens next. This market has pulled in and we are now in a historically weak period for the stock market. We must be prepared for anything to happen.

Recent action has pushed the crowd back into the bear market side. AAII Bears jumped back to near 50% to 48.45%. Bulls dropped to 23.71%. The crowd is hypersensitive to market movements and those who are bullish are likely to like the lack of bullishness amongst their peers. NAAIM dropped quite a bit from 94.71 to 53.09 long exposure. A large dropped from active managers and likely an indication of how sensitive people are in this market environment. We will always subscribe to the ability to control risk. Risk is controlled through position sizing and cutting losses. There is no need to be a hero and certainly do not want to take on unnecessary risks as we proceed into the presidential election.

We did see the Nasdaq Composite dip below its 50-day moving average. The S&P 500 has held it but has not seen the gains produced by the Nasdaq. It really isn’t a surprise to see stocks pull back to the 50-day after such a large run-up. The pandemic is still here and while we have the election it is also cold and flu season. Will the precautions in schools and other public gathering areas help? Time will tell. What we can do is control what we can control. There is no need to worry about what is out of our control. Most simply cannot stop worrying. Have a solid plan of attack. Stick to the plan and execute it. There are no new secrets to this game.

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