♬Say goodbye for the summer! ♬
August lived up to its reputation as the point in the year that we begin to see increased volatility in the markets (and in the weather too!). At one point we were up to approximately 60% in cash in August as markets began to pullback from their highs. We began to see a rebound higher again going into the end of the month which had us reinvesting but doing so with what we would consider rather defensive positions. We are still about 15-20% cash. Markets are looking tentative from here, again over concerns of the direction of inflation and rates. We are in what we would consider the Yellow Zone for our short-term Price Action trading charts.
We will defer this month to a good commentary and summary courtesy of SIACharts.com:
The trading bounce which capped off August has faded into the start of September, historically the seasonally weakest and most volatile month of the year for stocks. With investors returning from summer vacation and responding to last week’s stronger than expected US Nonfarm Payrolls and US Construction Spending reports, equity markets have started to backslide again this week.
Between indications of a robust North American economy and energy prices continuing to rise with Russia and Saudi Arabia extending their supply cuts through to the end of the year, inflation and interest rates remain a concern for investors, impacting interest sensitive groups such as Utilities, Financials and Real Estate in particular. In late August, Fed Chair Powell left the door open to more interest rate hikes, and the 10-year US Treasury Note Yield has climbed toward 4.35%. So far this week, the Bank of Canada and the Reserve Bank of Australia have held their benchmark rates steady.
A number of significant economic announcements are due over the next ten days which may give an indication of how much pressure the Fed is under to raise the Fed Funds rate again when it meets later this month. Headline numbers include US Consumer Prices on Wednesday, US Producer Prices, Retail Sales and an ECB meeting Thursday, and US industrial production next Friday.
Bottom Line We continue to use our short term Price Action Charts (Footsteps) to effectively trade along side the computers. As we stated, we have moved some money back into the market, but those positions are rather defensive in nature. They can potentially limit the downside but participate in the upside should markets breakout higher. In the event that markets break down from here, we will not hesitate to increase cash further. We are generally optimistic for the remainder of the year, but necessarily cautious.