My Game Plan Is Still to Play Defense

 | Jul 11, 2018 | 1:10 PM EDT
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The dip buyers made a decent try following the gap down open, but they have fizzled out and the indices are now retesting the lows of the day. This is a significant shift in market character and will be of particular significance should the indices close near the lows of the day. The market has done a good job of shrugging off the worries over trade wars for months but it is growing weary of the situation especially since there does not seem to be any clear time-line for some possible solutions to the problems.

As the old saying going, the market hates uncertainty and right now the biggest uncertainty is how much longer the trade war situation will continue. Market players don't seem particularly worried about major economic problems as a result of this issue but they don't have much clarity as to how things will ultimately be resolved.

One of the bigger problems for the market right now is the poor breadth. It has improved from the 3 to 1 negative levels that were hit earlier but there are few, if any, safe havens today. There is some relative strength in FAANG names, Alphabet (GOOGL) and Amazon (AMZN) but pockets of momentum are nonexistent today.

The biggest positive this market has going for it is that earnings season is approaching and there is a high level of optimism that there will be some very good earnings report. The tax cuts combined with a robust economy should result in some good numbers and the setup for a favorable response should be quite good given that there isn't a big runup into second quarter earnings season.

This is not attractive action today and the failure of the early bounce suggests that another round of selling may hit but there is still some good underlying support and stock pickers are likely to show up into earnings season.

At this point my game plan is to play defense, protect capital and not rush to make any big buys. I see some things of interest but the technical action just isn't strong enough to justify putting capital at risk.

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