Risks to the Markets
Markets basically closed flat today after being much higher during the day. So overall, I would call that negative. There were 3 items that put pressure on the markets:
Retail sales were hot - the risk being Fed will raise rates further.
Semis suffered because of government announcement around China.
GOP still cannot elect a speaker of the house. Market does not like uncertainty.
I am positioned mildly negative in the market although I do think the market is searching for direction. Interestingly, looking at all the stocks traded in the US markets, the picture gives us some hope because advances were again higher than declines:
The IWM was the big winner among the US markets today, up +1.13% but was up around +1.8% at its high of the day. So, the question remains whether the gains can be sustained.
There were 7 of the 11 sectors that closed positive today with XLK one of the big losers primarily due to the semiconductors weakness.
There are definitely risks to the downside at this time. In most of September, the VIX was range bound between 13 and 16. Now it is hovering between 17 and 20. And rightfully so as the risks to the downside have increased.
The hope is that earnings will come in good and beat current expectations. It is too early to say but so far so good. We have had the bank earnings which have been reasonably good.
Strategy
Most important is to be nimble. And there should be no compulsion to trade in this market. It is fine to wait for better trends (up or down) to develop. Right now, we are almost in a seesaw battle between the bears and the bulls. And I see more catalysts to take us to the downside than I see taking us to the upside.