Right now we have all the makings for a correction. Sentiment is weakening, market breadth isn’t very healthy, and the market is still worried about inflation and rising interest rates.
We had a really good start to the year and when you look at the main market averages, the Dow is outperforming, while the NASDAQ trades rangebound. A lot of market pros aren’t very enthusiastic about the stock market’s prospects over the very near term. Their negative market sentiment is having an impact in the current environment.
I keep thinking about the traditional ebb and flow of stock prices and I’m reminded of a lot of market research that suggests historically, the strongest time for stock prices is sometime between November to April. We’re getting close to the end of that threshold and my “gut” feeling is that the broader stock market is going to trend flat to lower over the summer. We may see a pick up in stock prices when the summer ends, and resume the uptrend towards the end of the year.
Of course, this is all just guesswork as you know, but it is my current feeling on the matter. I’m often wrong about the direction of the stock market and I could be dead wrong in this case. But, I do see a weakening in market sentiment right now and if its one thing I’ve learned about the stock market, it is not to go against prevailing market psychology.
In any case, it is a good time to keep riding the winning positions in your portfolio. I’d also cut most of any losing positions and build some cash over the next quarter or two.
Enthusiasm for stock market speculating does occur in waves and, right now, particularly with individual investors, malaise has set it accordingly, the broader market is drifting. My best guess is that it will keep drifting for the next several months.