The US Equities market spent much of the day testing resistance around 1,100 yesterday. At the end of the day, sellers won the battle and the market sold off to close on the lows. Classical, old-school technical analysis would tell us that this move now targets a re-test of the lows around 1,085, and if buyers fail to hold that line, a test toward 1,070. We tend to agree with this analysis, with the (major) caveat that summer trading rules are in full effect.
Recent action in this market has been highly random, and we expect this to continue until real volume comes into the market. In this daily report, we are compensating for this by qualifying all of our market calls, but we suggest that short term traders should protect themselves by reducing risk and position sizes.
There is no need to take real risk in a sub-optimal market. Longer-term investors should recognize that we do not yet have the clarity needed to justify increasing exposure at these levels. On one hand, much of the recent market action could be read as constructive, but it is in the context of low-volume, low-conviction market action. Our advice remains unchanged – hold your small pilot buys and wait for more confirmation to increase those positions.
We do notice that a divergence has emerged in world equity markets. China has become the clear relative strength leader off of the early July lows, with most other Asian markets outperforming Western markets on a volatility-adjusted basis. European markets in general are showing a pattern that seems to presage a significant selloff (see chart above).
Disclosure: "no positions"