Key Takeaway
As we come to the tail end of earnings season and enter a historically difficult seasonality period (Aug/Sept - especially Sept), the market is following suit. Below are the areas we are watching with great interest. RSI (top section) has dipped below 50, which is reason for caution. Price action (middle section) is sitting right on short-term support (50-day moving average) and must hold this area. MACD (bottom section) currently is still positive; however, not heading in the right direction. So the market is in a precarious zone which must be held, or we could see near-term decay. Stock prices and investor sentiment are high, and prime for a small pull-back. Eventually a pull back during a bull market, like we are in, has led to nice buying opportunities, and we have our shopping list ready! If the market cannot hold it's current range, I think we'll find the opportunity to buy great stocks at lower levels, possibly around the two green arrows in the middle section below.
We have begun taking some selective profits, and will continue to do so, especially if the current zone cannot hold. Market timing is virtually impossible on a consistent basis, which is why we use a combination of indicators to help us measure market risk.
Cannon AIQ example:
As the market potentially hits a "soft patch," below you will find an example of how not everything in the market is correlated. The energy sector kicked off a "buy" signal in June for our Cannon AIQ Strategy. As energy prices rise, this could be good for energy stocks, but not so good for the fight against inflation - potentially putting pressure on a near-term, overbought stock market.
If the market continues to soften, we will work hard to find areas of the market that do not run in tangent with the market during pullbacks - and yes, cash is one of those areas we'll lean on as well.
