It's no secret that Zenolytics has been consistently emitting bullish pheromones for a vast majority of 2019. That view is generally unchanged as of this moment when looking at the intermediate to long-term time frame.
Over the short-term, however, the market did something peculiar this past week. To illustrate it properly, perhaps the best visualization is to picture a formerly friendly neighbor who unexpectedly purchases two large Rottweilers, puts signs all over his house saying "Beware of Dog" and draws the drapes. Your first reaction would be wondering what got under his skin? And your second reaction would be staying away from his house for fear of being bitten by his vicious new pets.
That's what happened to the market this week, leaving investors with the question of what could be bothering it currently? And prompting the wise investors among us to decide that avoidance may just be the best policy.
As always, the clues to a change in market behavior are very subtle at first. Among the subtle nuances that took place in the market this week:
- MSFT should not have reversed that gap on the type of numbers it had, but chose to do so immediately, in what is a sure sign of supply and worry that has crept into the skull of large investors
- NFLX couldn't catch a single bid after gapping down substantially
- Biotechs look like they are on the edge of a cliff
- Small-caps have been left for dead, with the Russell looking like it wants to punch investors in the face
All of these subtle hints point to one big message: Investors have suddenly become cautious.
They aren't willing to bid good earnings.
They aren't willing to bid bad earnings in companies they love.
They aren't willing to speculate in biotechs and small-caps.
The "beware of dog" sign for the market should only be disregarded if you're into getting bit. Caution reigns in the week ahead, with a focus on reducing exposure while rotating from high (aggressive) beta to low (defensive) beta opportunities.
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