This market does not yet met the threshold for a bear market, but it is already acting like we are in one.
It was second very negative day in a row and the bounce buyers were unable to do much, although they had the indices off the early lows.
The selling was quite extreme at times, but that encouraged contrarians looking at the high level of the put/call ratio, the poor breadth, and the percentage of volume to the downside.
What helped to hold the market up was a reversal in bonds following a poor auction. Bonds were strong again, but finished at the lows of the day. That helped banks and provided the market some support.
The big question now is whether the market is heading for corrective action like we saw in the fourth quarter of 2018. So far this correction has proceeded at a slower pace, but the 2018 correction didn't really accelerate until about two months after it started.
The big problem in 2018 was that the market was battling the Fed. When Jerome Powell shifted to a dovish stance, the market quickly found a low.
This time the Fed is already extremely dovish and the talk now is about potential rate cuts. Currently, expectations are for at least two rate cuts before the end of the year. So the issue will be whether that can help to put a bid under the market.
Currently we are in a downtrend and support levels continue to fall. There is no reason to anticipate that the indices are about to find support and go straight back up.
A high level of cash is your best bet right now, but stay optimistic about the opportunities to come.
Have a good evening. I'll see you Thursday.
