Over the past few trading sessions financial and small cap stocks have been noticeably weak. Heading into the Federal Reserve Announcement MCO came out downgrading a few banks including BAC sending the stocks lower. Volume ran consistently higher throughout the day on the NYSE while the NASDAQ flirted with the volume being unchanged. The situation changed shortly after the Fed Statement was released and only accelerated in the final hour. Institutions continue to dump stock on the market despite what the experts say about the fundamentals of this economy. Today marks the second straight day of distribution as the market is signaling danger ahead.
Last night’s commentary I wrote about the little head and shoulders pattern developing on the Russell 2000 (used IWM). Today the index plunged through not only the head and shoulders pattern, but the infamous bear flag many have been referring to. For kicks I calculated the bear flag target and its quite scary the Russell 2000 projection for the bear flag is roughly 33% lower from here; the target, 420. Anything is possible, but one thing is for certain this market wants to head lower from here and if you are long stocks it is time to unload and protect yourself.
The United States of America has plenty of problems to deal with currently and it will take courage and leadership to right this ship. Unfortunately, more spending and more taxes will not cure what ails the American economy. Perhaps the stock market is pricing in events we have not seen yet, but we do know price and volume have us on the short side of the market rather than the bull side. Natural reactions in the market will occur like what we just witnessed recently. Unfortunately, the long-term trend is down and it will take some time to repair the damage. A change in leadership will certainly help, but bold plans to overhaul our government spending, taxing, and regulations are sorely needed (we need regulation, just smart regulations). We are a great nation, we need to remind ourselves of that and start responding appropriately!
U.S. 30-YEAR YIELDS DROP BELOW 3% FOR FIRST TIME SINCE 2009
This headline just crossed my pc. Who wants to earn 3% on their capital before inflation and if yields begin to rise? Your capital is now at risk to lose! On-balance you will lose money due to inflation and loss of capital. A bad bet, you are better off sitting in cash keeping your capital safe.
Cash is king!