We have mixed action on Tuesday as the indexes lag while breadth is running at better than two to one positive. Small-caps are leading with a gain of nearly 0.8%, while big-cap technology (QQQ) is in the red. China stocks are bouncing back strongly from Covid chaos as there is talk about maybe some shift in policies there.
This sort of action has not been unusual in front of important data or Fed speeches. Market players apparently want to embrace some optimism even though it has consistently been a mistake this year. The relative strength seems to stir up some fear of missing out, and the track record of what Fed Chair Powell has done to this market each time he speaks is forgotten.
Powell is scheduled to speak at 1.30 p.m. ET tomorrow, but there apparently isn't any great worry about that at the moment.
I'm not optimistic about Powell and have little interest in building longer-term positions in front of his comments, but I'm always looking for some short-term trades.
My current market strategy is as follows:
1. Maintain very high levels of cash. I'm just about 30% invested right now. This is primarily a function of very attractive long-term charts. There just isn't any reason to believe that a sustained positive trend will develop right now. I'll be happy to put cash to work when conditions change, but I see no reason to do so right now.
2. Keep working on my shopping list. I see more stocks with better support. The number of new lows is declining, and many of the small-cap stocks that I favor are holding up fairly well but have not yet found any sustained buying. I have to work extra hard to track these stocks and be ready to move when the character of the action improves.
3. Trade short term. There should be some higher levels of volatility before this bear market comes to an end, and the best way to handle that is with index and ETF trades in very short time frames. The most important issue is that these trades be managed very tightly.
4. This is not a market for stock picking. Institutional Wall Street is going to roll out its great stock picks for the new year, but this just is not a market in which I want to load up on individual stock picks. There is no value in being early to the party.
5. Stay patient. Too many market players are sick and tired of this poor market and are trying to force some bullishness. The primary basis for their optimism is that the poor action has lasted too long. That is not a good argument. Wait for better action, and don't try to anticipate it.
I feel quite comfortable with my position right now and will keep searching for new opportunities. When the price action cooperates, I'll be moving quickly, but currently, this is a market for sitting and waiting rather than action.