The apprehension of a suspect in the e-mail bombing put the brakes on the market slide, underscoring the fact that so much selling these days is emotionally-driven.  Knee-jerk reactions trip sell programs, which in turn trip additional sell programs.

We must give a shout out and big thank you to law enforcement.

Buying is all over the place with a big focus on buying 52-week lows.  That’s great for traders, and I do see longer term rotation in underperformers, but we must be worried about value traps.  The great news is this is the perfect economic backdrop for a broad bounce led by consumer spending.

Message of Market

All the attention that household names in consumer service, consumer discretionary and technology are receiving today is justified, but the interpretation to the economy is being misread.

We are seeing the impact of several factors:

• Strong dollar
• Weaker global economy
• Greater competition
• Potential regulatory hurdles

As for the economy, I think guidance from Amazon (AMZN) and Google (GOOGL) dovetail perfectly with the trends from the GDP report, which was almost perfect.  The asterisks in the repot bode well for the future.

• Business investment will rebound.
• There was a surge of imports ahead of tariffs, so there will be much slower imports in this and future quarters.  This, by the way, underscores why we should fight for better trade deals.

SOS to Powell

There is a glaring problem in the market that should worry everyone.  Home furnishing company Mohawk Industries (MHK) missed on revenue and earnings, sending its shares off a cliff, along with all the other names in the sector, including Home Depot (HD).

There are weak spots in the economy, and therefore, the worse news of the month isn’t the market sell off, but it is those misguided comments by Federal Reserve Chairman Jay Powell that ignores the fragility of the recovery.   Housing is a disaster.  Mortgage applications are diving, supply is swelling, and the Homebuilder Index, XHB, is down 25% this year.

XHB

Portfolio Approach

We are updating the Portfolio Approach (PA), our road map to building a balanced portfolio.  Going forward, the PA will come out once a week, on Friday evening.  We have also rebalanced our sectors and weightings.  We have reduced our weighting in Industrials and have increased our Cash position. 

The PA is based on 20 equally weighted positions, which include cash.  The following table represent our new Sectors along with their current weighting.  If you are not currently on the Hotline service, call your account representative, or email us at Info@wstreet.com to get started today.  To take a trial to our Hotline, click here.

I think the market comes back, but it could soar if the Fed does not over play’s its hand.

Have a great weekend.