It is ugly out there, but I'm feeling increasingly optimistic about the potential into the end of the year.
We have been undergoing a pretty routine correction, starting in early September. What was a little different this time was that there was a very wide disparity between what was going on with big caps and the indexes and the rest of the market. Growth stocks, special purpose acquisition companies, biotechnology, and many speculative names were in a bear market, starting back in February. During the whole time, they were correcting, the indexes kept running higher on poor breadth.
We are now seeing a reversal of this inconsistency. The entire market is weak today, but the big-cap technology and growth names are finally catching up with what has occurred in the broad market. The FATMAAN names are lagging, and that is what this market needed more than anything to realign what has been going on under the surface.
The primary reason I feel optimistic is that I believe the corrective action in many of the stocks I favor is just about over. They have already fallen below their 200-day simple moving averages and have been in downtrends. This push lower feels like the final washout before we start to set up for the traditional strength that occurs from November through January.
What is key is that this is still a two-tiered market, but now it is the big caps and indices that are correcting, while many other names are basing out and establishing support. This may continue for a while longer, but I see some great potential in the secondary names and plan on being very aggressive as they develop.
I am currently holding around 60% cash in accounts I manage for clients at Hammerhead Financial Strategies and feel that I am extremely well-positioned as conditions unfold. I'm very optimistic about the opportunities that are developing due to this corrective action and will be watching things closely.