The market’s miserable performance continued on Tuesday morning as various factors added to the growing concerns about the state of the economy. Oil prices reached their highest levels of the year, further increasing worries about inflation and its impact on the overall market. Additionally, housing starts came in lower than expected, bond yields continued to rise, and the Canadian Consumer Price Index surpassed expectations.
Technically, the S&P 500 reached its lowest level since August 28, and other indexes also traded below key moving averages. The Russell 2000 fund, which represents small-cap stocks, experienced particularly poor performance, reaching levels last seen on July 6. This underperformance has been evident for some time and has been reflected in weak breadth, or the number of stocks advancing versus declining.
The selling pressure has intensified in recent days, with the number of new 12-month lows continually expanding. Currently at 250, the number hit 350 on Monday. The Nasdaq 100 has also suffered, with breadth running four-to-one negative and all key big-cap technology names in negative territory.
In this challenging market environment, it is essential to adopt a cautious approach. The recommended strategy is to create a watch list consisting of 25-30 stocks and closely monitor their reactions to the market conditions. While some stocks may appear undervalued during this downturn, it is crucial to exercise caution. Attempting to time the exact low can lead to premature buying and potential losses.
A more effective approach is to wait for clear support levels to form and then look for potential bounces. This support level serves as an obvious stop-out point and prevents investors from entering positions in the wrong direction. It is tempting to buy stocks during the decline, hoping to capture a quick rebound. However, this strategy is not consistently successful.
For those looking for bottom-fishing opportunities, AST SpaceMobile (ASTS) may be worth considering. Despite disappointing loyal retail investors for several months, the recent news of the company’s successful 5G connection between a satellite and an unmodified smartphone led to a spike in its stock price. With technical support and positive developments, AST SpaceMobile may experience a much-needed bounce.
– Moving Averages: A technical indicator used to identify trends by averaging historical prices over a specific period.
– Breadth: A measure of market participation that reflects the number of stocks advancing versus declining.
– Bottom fishing: A strategy of buying stocks that have reached low prices in hopes of profiting from an eventual rebound.
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