I don’t like this market anymore. The reason I have a discretionary trading account is to be able to change direction quickly, but in the past month I got caught off guard multiple times, doubling down on long positions instead of raising cash. Sentiment is changing though and it might be time to reassess things.
The first sign that this market was about to turn was the sharp decline in oil prices. The algos sent the distress signals a month ago, but I let geopolitics override the math. Big mistake. The volatility in the oil sector was the first cue that something wasn’t right. It was a severe price decline (15 percent in October) that has continued into November without a reversal in sight.
The seesaw market action that we’ve been experiencing in stocks came as oil prices went on meltdown mode. Both stocks and oil prices are sensitive to rate hikes, not to mention global slowdowns. Oil is also bought and paid for in dollars. A strong dollar dilutes oil. A strong dollar makes American products more costly and this has an adverse effect on corporate profits. Markets are forward looking. The American economy might be on steroids (years of QE), but that’s not necessarily a good thing for the rest of the world.
So what happens now? There are two possible scenarios here:
- The market rallies because America is great again and we finish the year on a bullish note.
- The market continues to tank and we enter a bear market.
After today’s action, I’m absolutely convinced this could be the beginning of something more nefarious. This market has been too forgiving of our sins, but I think the devil is finally ready to reveal himself.