If I had to guess, I’d say buy the dip… but maybe not until next week. (But because we’re pro’s we can’t make recommendations without all kinds of blow-back, so this is NOT investment advice, and I’m not suggesting you actually do this – I’m just, ya know, throwing it out there in the ether for all to ponder.)
Call it a hunch.
Buried in all the chaos of last week’s abrupt sell-off is the nagging fact that markets had been on a low-volatility tear for several weeks. August had been a fantastic month for bulls. Stocks were up big almost across the board. But big tech? Or, perhaps more appropriately ‘spec tech’ ?
The expression goes ‘bulls don’t die of old age.’ Experience says this is true. But experience also says sometimes profit-taking happens. And we’re (less than) two months out from an election and tech valuations were reaching 1999 levels. This shouldn’t really come as a surprise.
From a technical perspective, all this looks like is a healthy pull-back so far. It would take the S&P 500 retreating below the 3325 level to signal a more significant trend breakdown.
Is it possible? Of course. But what fundamentally changed in the marketplace? What new information is the market digesting? Did the Fed signal a change in course? Did we learn something new about anticipated changes in leadership in Washington? Did we see any significant changes in international trade or commodity pricing?
Mostly, we saw some areas of the market got really expensive, and assets started rotating out of those areas.
Will weak areas of the market start to catch up? Hard to say.
Will tech recover? Also hard to say… but several stocks are off nearly 20% or more in a short time. So it’s possible money will jump back into the tech trade soon.
September has a lot of superstition around it. So do election years. So do years where you’ve had pandemics and the markets had full-blown bear pull-backs. And so do years when the governments throw so much stimulus at the economy it breaks all the models.
The reality is 2020 isn’t normal. Trying to fit it into some kind of analytical box is exactly what it sounds like – data fitting. This is likely a fruitless endeavor. We’re simply coloring outside the lines right now.
When looking at the BigFoot database, there has been no significant changes. There were some sells (a shift of about 4% lower in terms of overall long weightings), but the bigger move was to caution as the wait signals increased. Both the NASDAQ and S&P 500 shifted to wait signals – the DJIA still has a buy.
Thanks to Labor Day this is a shortened trading week. The typically means increased volatility. But then again, it’s September of an election year, so do we even need to discuss this?
For the week, look at major support near 3325. A breach of this level would be more serious. Otherwise, it’s likely part of a more typical pull-back than a break in trend. It’s unlikely we’ll see the markets push new highs for the week. Instead, look for a negative start to the week with some consolidation — perhaps even some recovery buying in hard-hit areas of stabile large-cap tech. Spec-tech (speculator’s tech) is likely to continue getting knocked around as novice retail investors panic out of the markets some.
Hang in there… could be a wild ride…
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