Stocks sputtered on Tuesday, but some narrow strength in big-cap technology, and Tesla (TSLA) and Apple (AAPL) , helped to hold up the Nasdaq and Nasdaq 100. Under the surface breadth was poor and more than 2 to 1 negative. There continued to be some pockets of strong speculative trading, but it was choppier and inconsistent. Hot money that chased themes suffered some pain. Weakness in Bitcoin and Ethereum also helped to cool off speculative interest.
The bears always have a narrative to justify their dislike of the market, but the key is to watch to see if the arguments are being reflected in the price action. For quite a while, the market has ignored arguments about valuations, a slowing economy, extended technical conditions, and so on, but when the price action slows, market players start looking for big picture justifications, and they begin to start to matter.
There is a confluence of events hitting right now that suggests that the market is ready for a pause. September seasonality is a tendency that has to be watched, and when that is combined with quite a few extended stocks and some cooling in speculation, it suggests it is time to increase caution levels.
My review of charts last night revealed few compelling setups. That doesn't mean that stocks are going to suddenly collapse, but it does suggest that it is a good time to tighten up stops and be much more selective with new buying. Traders have been focused on themes like short squeezes and de-SPACs recently, but they are becoming more volatile, and the momentum has shifted quickly.
The price action, the shift in speculative trading, the lack of good setups, and the strong rebound off the "Snake Bite Bottom' suggest that it is now the time for increased caution. That doesn't mean you rush to short the indices and dump solid stocks that are holding support. It suggests that it is necessary to cultivate a more cautious mindset and be ready for some tough trading during the month of September.
We have a mild negative start on the day, and cryptocurrencies are under pressure again.
Apple is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL? Learn more now.)
