Monday’s Action Was a Warning for the Market Shift
The story of the market for the past several months has been rotational action that has helped to hold the indices steady. The mainstream business media has kept reporting about how great the market has been because the indices have stayed close to all-time highs.
The reality is that there has been an enormous amount of volatility under the surface, especially in groups like semiconductors, data centers, oil and energy, AI infrastructure, biotechnology and retail. All of these sectors have taken turns leading and lagging and that helped to hold the indices steady.
That action has now shifted and we are seeing broader corrective action. On Monday only about 36% of stocks were in positive territory. The S&P 500 was down 0.27% and the Nasdaq 100 ($QQQ) was flat. That isn’t extreme but it is an indication that there are some worries about inflation and chip pricing as we move into the seasonally weakest time of the year.
Cycles Are the Only Certainty
This action should not come as a huge surprise. The only great certainty of all markets is cycles of ups and downs. We’ve enjoyed a choppy up cycle for a while and now the stars are aligned for some corrective action.
My best advice is don’t fight the inevitability of market cycles. Embrace it. It will happen whether you like it or not, so you have to find ways to deal with it. The most important thing is to protect capital and try to keep the drawdowns as shallow as possible. That can be hard to do as you watch some of your favorite stocks with great fundamentals be sold without any regard for their value.
The good news is that if you do have capital, then action like this always leads to a new crop of excellent opportunities. It requires great patience and some sound strategy but down cycles always come to an end just like up cycles.
Game Plan
In addition to trying to keep accounts close to highs, my main goal is to have a solid shopping list and a methodology for buying the names I favor. The most important thing is to stay patient and to avoid the game of trying to predict a market turn.
We will see how things develop from here but the action on Monday is a warning that the character of the market is shifting and the likelihood of struggles during the month of September is quite high.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
