Thirty-one years ago, almost to the day, the Dow endured its steepest sell-off in modern times, falling 22.61% on October 19, 1987.
Market corrections are never easy to digest, and the current pullback for the stock market is another case of zero fun. The S&P 500 has declined for 11 of the past 12 sessions as concerns about global developments dampened buying interest.
The benchmark index opened just modestly lower but started extending losses soon thereafter. However, the S&P 500 did close a hair above its 200-day moving average of 2,768 to show a silver lining on a day hard-pressed for good news.
The stock market opened slightly lower after disappointing news overseas. China’s Shanghai Composite tumbled 2.9% to extend its yearly loss to nearly 25% and touch a four-year low, amid investor concerns over slowing economic growth.
In addition, Japan’s Nikkei fell 0.8% after the country reported its first year-over-year export decline (-2.1%) since November 2016. Meanwhile, burgeoning angst that the Italian budget situation could get nasty and upset global financial markets sent European indices lower.
Back to the home front, U.S. Treasury Secretary Steven Mnuchin added to the uncertainty when he announced that he would be pulling out of next week’s Future Investment Initiative conference in Saudi Arabia. The decision comes as investigators seek answers over the disappearance and alleged murder of dissident Saudi journalist and Washington Post columnist Jamal Khashoggi.
In equities, the growth stocks in the information technology and consumer discretionary sectors that have led this mature bull market did not provide any support last week. The information technology sector relinquished its lead as the best-performing S&P 500 group year to date to health care. The tech sector is still up 11.1% on the year, while health care is up 11.8%. The S&P 500 is higher by 3.6%.
This week is the thrust of earnings season and I expect the market to manage a successful retest of the Oct. 11 low and then turn higher on the back of a wave of strong sales/earnings data and solid forward guidance. The bull trend feeds most on earnings, valuations and money flow. Coming into this week and in light of the volatility, all three of these drivers favor a successful bottoming process and a resumption of the primary uptrend in the weeks and months ahead.
Again, market shakeouts are never fun or easy to absorb, but they are constructive to the long-term health of the bull market. Over 3,600 companies are set to report earnings over the next three weeks and, when the investing world digests the thrust of just how well the economy performed in the third quarter, I believe the market will reward those who not only showed patience through the current correction but took full advantage of it. One way to be prepared for a potential turn higher is to have some artificial intelligence (AI) in one’s investing toolbox. My Hi-Tech Trader advisory employs AI to select stocks that are poised to trade higher over the next 22 trading days, giving investors a directional trading portfolio that utilizes only the best names traded by professionals.
While a great many hot tech stocks have corrected 10%, 20% or even 30%, my AI system recommended stocks like Microsoft (NASDAQ:MSFT) and Cisco Systems (NASDAQ:CSCO). These blue-chip tech giants have held their short-term uptrends in solid fashion and will vault to new highs when the market rights itself. Having stocks that are technically sound means they don’t have to overcome a lot of frustrated owners that paid much higher prices and therefore become overhead resistance. Identifying those special stocks that don’t cave in when the market corrects is how AI provides real value.
Within my Hi-Tech Trader service, I recommend no more than five trading strategies at any time, each with a corresponding option trade for those that trade puts and calls. To find out more about Hi-Tech Trader and the power of AI to pick consistent winners — click here and take a quick tour. Better yet, put Hi-Tech Trader to work before the market resumes its upside bias and know where the best trades are among the hundreds of choices within the tech sector. The tech sector has led the bull market to date and, from my vantage point, will lead the market for years to come.