The immediate and complete reversal of Tuesday's big bounce is causing much consternation Wednesday. Many of those who didn't trust the bounce much were looking for some follow-through, but weak economic news out of Germany and China combined with inverted-yield curves triggered a rush for the exits.
The dip buyers that used to jump on weak opens so quickly are not interested Wednesday morning, which isn't a big surprise in view of the swings that have occurred recently. Even if you are able to catch a low, there is an inclination to flip rather than look for sustained momentum.
What is most notable about the market is how the narrative about a weak economy has taken hold. The strong bonds are viewed as a sign that market players are looking for safety and that cheap capital is no longer the driver for equities that it once was.
This market has been giving us some very clear warning signs for a couple of weeks now, so prudent investors should already have high cash levels.
The good news is that plenty of stocks are getting unfairly punished and will eventually offer good opportunities. We are just going through a normal market cycle when stocks can easily sink further than seems rational.
My game plan is to maintain a very high level of cash, stay patient and try to identify some names that I want to eventually buy. There isn't much else to do if you are already defensively positioned.