Markets Still Lacks Direction
The selling to end yesterday’s trading day was disappointing in many ways. However, the most important was the psychological. There was a glimpse of positive sentiment creeping back into the markets and then - bam! the door slammed shut. This keeps investors weary and doubting the bounce off the current support levels. These little mental battles are important to watch. If enough of them join forces in the mindset of the investor, they result in a trend change. From my view we are seeing this develop now, which is why I remain cautious short term.
I mentioned yesterday that any good news would be short lived as the focus would shift to the Friday jobs report. The good news made it about 30 minutes before the selling kicked in to push the indexes back near the even mark on the day. The dollar was weaker helping the dollar trades in commodities, retail was weak (ANN missed earnings after close), energy moved sideways despite oil up 1%, financials were weaker testing lows, small caps were weak again testing the low and technology was flat (Cisco beat estimates after hours). Not exactly a bullish reversal for the markets.
What’s up with banks? The support is eroding and the downside risk is growing. The risk or at least the perceived risk of the trade has grown and the buyers have fled. My view this leaves the sector vulnerable to the downside. KBE, SPDRs Bank ETF has broken below support and could test the $17 level. This sector could be the catalyst to a test of the September lows short term.
The dollar turned lower yesterday inviting all the doom and gloom chatter over a worthless currency. The carry trade talks heated up and commodities moved up in response. Gold has gained confidence as India steps up and buys gold versus dollars. Speculation China will be next along with other countries diversifying from U.S. It may all be true, but it certainly isn’t anything new. This is why we have made several recommendations on the watch list of how to address this in your portfolio.
The focus managing the risk of your money relative to your objective. Too often we get focused on making money and lack the attention necessary for managing the risk of losing money. I am more convinced than ever that the motivation for managing your money has to be the driving force behind how you invest your money. This simply means if I want to have enough money to provide me an income of $60,000 per year in retirement it has to be real enough to keep you focused on the goal. I call this the psychology of motivation. If the goal isn’t motivating enough, I will not do what is necessary to overcome the obstacle in the way of accomplishing the goal. Managing money comes with obstacles every day. Are you motivated enough to do what it takes to manage your money and accomplish the stated goal? If not, it’s time to retrench and find the true motivation for managing your money.
I don’t expect this to be a big day for the market with the jobs report tomorrow morning. More retail data out today, jobless claims and more chatter about the Fed will set the stage. Look for an early test of the September lows. Stay focused, stay disciplined and manage the risk of the markets.
Have a great day investing.
