The major indices reversed after the open on Tuesday, and sold off on higher volume. There was no rush for the exits, but it was steady selling most of the day and there was little interest in buying the dip.
The indices, with the exception of the small-cap Russell 2000 ETF (IWM) , are still above the lows that they hit earlier in August, but the support is precarious at best. The S&P 500 has some support under the recent lows at its 200-day simple moving average, but if these levels are tested it is going to take a toll on sentiment.
There are no major positive catalysts on the horizon right now. Earnings season is over, there is unlikely to be any immediate progress on trade, the Fed isn't doing anything until its next meeting in September, worries about an inverted yield curve are growing and signs of economic slowing continue to build.
Probably the biggest positive is that most everyone is aware of the bearish narrative and sentiment is already quite poor. There are the usual bulls, but they seem to be uncertain about this market in the short term. Eventually, they see the dovish Fed and a good economy putting the market back on track, but there are obvious short-term issues that can't be denied.
The one thing that makes the bears most nervous is the potential for a surprise tweet from Trump. Although Trump's spinning is dismissed for its lack of substance, it still has an impact. The computer algorithms react to it without any critical thought and it can easily produce some squeeze action when so many market participants are already leaning bearish.
There is plenty of speculation about where this market is heading in the next days and weeks, but what is paramount right now is managing risk. It is far more important that you focus on protecting capital than trying to catch quick gains. The cost of losses now is very high, because it is so easy for them to snowball if support levels fall and momentum builds to the downside.
The focus should not be on predicting what the market is going to do. It should be on making sure that you keep your accounts as close to highs as possible so that you can quickly build them to new highs once the trading market improves.
Too many market players want to play the prediction game rather than risk management game. Predictions are fun and challenging but in this business, it is strategy that pays the bills. The best strategy right now is to be zealous about controlling risk.
Indices are close to dead flat in the early going as there is little significant news flow to react to.