The stock market sold off hard again today on increased trading volume and failed to get back up through key price support levels. In the process it triggered the 3rd stage of our 3 stage “sell-signal”. Due to the continued weakening of certain internal technical indicators and the growing amount of professional selling (Distribution Days), our official outlook has changed to “Market in a Correction” and our light is “red”. As of todays close, the decline from the recent all-time highs reached (-10.2%) on the S&P500 & (-9.7%) on the Nasdaq. Keep in mind it will take time for the market to digest these declines and repair the price damage. It is possible that prices could even advance vigorously for a few days creating a potential whip-sawing effect in the indexes while still being under mounting selling pressure.
Investors all across America are wondering what has caused this rapid decline. Is it a possible debt-ceiling impasse in Washington? Is it financial system fear related to the collapse & closing of the Exchange Traded Note with the symbol of XIV? Or is it a growing concern over inflation and expectations of much higher interest rates coming in 2018-2019? While these are good questions, all that really matters is the price & volume action of the major indexes and leading stocks, and currently it is sick.
By definition, a “correction” is typically a decline of 10-19%, while a “bear market” is a drop of 20% or more. A “crash” is a significant decline (25% or more) in a very short time period (typically several days to a few weeks). While we are not calling for a crash, if one were potentially on the horizon an immediate clue would be to see continued brutal price declines again tomorrow (Friday) and on Monday.
At TPM we remain diligent to protect our clients assets by respecting and responding to our time-tested disciplines and technical indicators. This is a hallmark of ours and the second part of our TPM dual mandate. As an example, at the start of business today the average cash position in our models for our 4 growth/equity strategies were at 31%, 43%, 71% & 100%. While no one knows how far down or how long a correction may last, rest assured the internal market indicators we employ will broadcast a new “buy” signal once the market is ready to advance again. We do not mean a simple reaction bounce. We are referring to an eventual return to a confirmed uptrend that possesses positive money-making market conditions.
Please check back for future updates and Have a Triumphant day! ®