The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Jitters.
Moods were calm until about an hour before the open. Concerns about the anticipated December rate cut arose and risk-off momentum built across multiple markets. The S&P 500 opened down about 30 points and lost many more over the session. Precious metals traded similarly. The Dollar traded similarly. Even Bitcoin traded similarly. Treasuries didn’t provide a safe haven either. Yields climbed across the curve. Despite the significant risk-off moves, capital flow was only 116% today.
The capital flow suggests that investors didn’t get scared today either. It seems we started the day with a risk-off move that snowballed with its own momentum. Investors seem to have taken it in stride. Certainly a 1.7% decline in stocks isn’t historically meaningful, although lately it sticks out like a sore thumb.
Many are scrambling to find a specific event that might explain today’s price action. I don’t believe one exists. It doesn’t have to make fundamental sense to accept that crowds will turn randomly and trend with gusto just because that’s innate behavior. If the crowd overdoes things, that presents good opportunities, both for buying and selling.
Which begs the question, did today’s crowd overdo it?
I don’t think so. I don’t know what a proper valuation should be. However, we’ve been zooming upward since April and the gains have been eye-popping. We’ve traded about the 50-day moving average almost uninterrupted since May and we’re still above it now (6699). We’re also on the precipice of two months worth of economic releases so the risk is elevated.
In that light, It is completely appropriate for risk to come off as we enter the unknown. It doesn’t have to be an indictment on the future of the stock market for some investors to cash out near the all-time highs in this environment.
I think we observed a group-think moment today and it wasn’t necessarily a bad group-thought and it wasn’t rooted in an identifiable headline. The longs have a lot of capital on the table. They’ve been thinking about trimming for a while. Momentum went south in the morning and that was a good-enough signal to punch out some positions and be ready for the coming weeks.
Of course, it could also be something rotten that fast money sniffed out before the rest of us. We’ll all find out for sure by December.
See you tomorrow.
-Mike
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