This is what corrections look like.
When Consumer Staples bottomed out on March 1st relative to the rest of the market, that was one of the first signs of defensive rotation.
At the time, we chalked it up as just one signal, of many that we monitor.
But as the month has progressed, the soldiers continue to fall.
Aussie/Yen has rolled over and we’re even getting a bid in US Treasury Bonds:
As a reminder, these lines going up is consistent with a market environment where stocks are under pressure.
You know what else is indicative of a market where stocks are under pressure?
We’ve certainly seen those develop in small-caps, Micro-caps and even Mid-caps:
Does mean that this is all over?
No, I don’t believe so. As long as US Financials are above those 2007 highs, it’s tough to make a structurally bearish case.
The weight-of-the-evidence suggests this is just a messy environment within a larger more macro advance for stocks.
The question becomes, How long will this take?
And that I don’t know.
One tell will likely be how long it takes for Energy stocks to digest this overhead supply from those former lows in early 2016.
This was the first time knocking on the door:
The way I learned it, it’s only polite to knock on the door a few times before you go storming in. As you can see in this chart above, Crude Oil just busted through that wall last year like the Kool-Aid Man.
So I would also expect Energy stocks to get through there eventually. I’m just not sure how long that’s going to take.
We’re also looking for Small-caps, Mid-caps and Micros to get back above those February highs. But again, how long will that take?
So what is the best thing to do in this environment? Well, as always, I would encourage you to identify your time horizon and objectives.
We’re all here trying to accomplish different things on a variety of timeframes.
I know people who go on vacation whenever the Nasdaq falls below its 50 day moving average.
I know people who have that shopping list handy for times like this, stocks they wish they had and now have the opportunity to own cheaper.
I know people who just get a lot smaller to avoid getting whipped around.
I know people who look for stocks that are bucking the trend.
It’s a frustrating time for trend followers, just like how in prior trending market, the mean reverting community got trampled.
There’s a time and a place for everything.
For me, it’s about first identifying the market environment, and then finding the tools and strategies that are best for that particular world.
What are you doing in this market? What are you not doing?
Taken From Email March 24th 2021 09:37 AM