Here on Friday morning hard data are hitting that confirm the economic slowdown the market has been worried about all week. China export numbers were shockingly bad. Exports fell more than 20% in February year over year, which was the third straight month of declines and well below expectation of a drop of 4.8%. The Shanghai Composite took a hit of 4.4% on this report.
Another issue weighing on the market is talk that the U.S. and China are still far from a deal on trade. No meeting has been scheduled and U.S. Ambassador to China Terry Branstad is reported as saying neither side believes a trade deal is imminent and no date is set for a summit.
This news is feeding the bears who already have seized the technical advantage this week. While the indices have not fallen enough to enter into a downtrend, they are under pressure and testing support levels. The thing that has been of particular concern is the relative weakness in the Russell 2000 Index of small-cap stocks, which is down more than 4% over the past week.
The bulls hope things are becoming oversold enough for a bounce, but that is a weak basis for optimism in view of the steady selling this week and the change in the market narrative. The market stayed focused on positive news on the way up and ignored the bearish arguments. The sentiment has shifted and we need to understand that the big worry now is growth and that there is far less optimism about a China trade deal.
There is still a good likelihood we will see some rallies on news of progress on China trade talks, but after the sell-the-news reaction to the last headlines on Monday there will be less of an inclination to chase good news.
The good news is that there are still some narrow pockets of speculative action for aggressive traders. Bio-Path Holdings Inc. (BPTH) exploded on Thursday and Seelos Therapeutics Inc. (SEEL) is exploding here on Friday morning.
If you haven't already taken some defensive action this week, it isn't too late. Set some sell stops and don't let losses grow. It may feel like it is too late, but there is an emotional benefit to staying in control of positions and not just sitting and hoping the market bounces back. You can make up the losses quite easily when the action improves, but the more you give back now the harder it is to move your account back to highs.
I frequently preach that the key to superior returns is to keep your account as close to highs as possible. We are now in an environment where that requires some real work. Focus on protecting capital. Once you have done that, then you can focus again on finding new opportunities.