The third quarter comes to an end today, and that is likely to produce some increased volatility as money managers try to paint a slightly better picture. The market has been undergoing corrective action for nearly a month now, and it has become sloppier as two bounce attempts have fizzled and worries about the macro picture have developed.
It is likely that there will be a vote held in Congress today to push back the debt-ceiling issue, which may help to give us some better window-dressing action, but the big problem now is that big-cap technology stocks are under pressure, and there are many market players hoping to do some repositioning. Expensive, high-beta, big-cap technology names have been suffering the brunt of the damage the last few days, and it is bad enough that the pressure is leaking over to other areas and keeping money on the sidelines.
Part of this is due to seasonality, part of it is due to how big-caps have become extended compared to most other stocks, and part of this is due to macro worries about inflation, interest rates, and congressional battles. The market is working on sorting it out, and there should be some interesting technical setups as we head into third-quarter earnings in a couple of weeks.
One positive consequence of this action is that it has tamped down bullish sentiment. Skepticism and doubt are on the rise, and predictions of a very difficult market are building just as we are heading for the seasonally best time of the year.
It is very messy out there right now, but in the bigger scheme of things, this corrective action is healthy. This is just a normal market cycle, and we have to stay patient as it plays out. The big gulf of performance between big-cap technology and the rest of the market is starting to dissipate, and that is a positive.
My game plan is to continue to maintain a high level of cash, stay patient about adding to favored stocks, and try to knock out some very short-term trades as opportunities arise. I'm not bullish about the market in the short term, but I am very optimistic that conditions are developing for some great trading in the fourth quarter.