McCullough: Stay Away From These Sectors In #Quad4

Keith McCullough: Volume yesterday, what do you think it did on the splash to the downside when Fed Chair Jerome Powell wasn’t dovish enough? Look at this.

This is what the volume did yesterday. The process says that when the price is bearish trend and the volume accelerates on down days and volatility is bullish trend, you indeed have a bear market.

McCullough: Sector studies. Even if you’re long Utilities yesterday you lost a little bit of money. I don’t know if you’re OK with that or not but that’s what happened. The whole point of running a long-short book, whether you’re an ETF Pro or institutional subscriber, you have longs and shorts. If you’re a long only your job is just to outperform the other guy or gal.

So while Utilities were down, they were not down as much as the new XLC, which you would not want to be long in #Quad4. Communications is fully loaded with Facebook, which is a short in your daily Risk Ranges. Just look. That’s the point. The Communications sector was down -2% and Utilities were barely down.

If you think that because Utilities do well in #Quad4 (i.e. an environment in which U.S. growth and inflation slow in rate of change terms) so you’re not going to have down days you need to recalibrate that.

Stay away from Tech. Stay away from Financials. Stay away from Energy. Stay away from all of the things we don’t like in #Quad4.

McCullough: Next up, Japan. So if you want more cowbell from the Fed and that’s your bull case, more dovishness, just look at Japan. The Bank of Japan came out last night and said ‘We’ll provide unlimited cowbell and the stock market went down almost -3%.

So check your premise. Think about it. If you want the stock market to go up, you need the U.S. dollar to go down. For the dollar to go down, you’d need to see more negative economic data. So, if you want to be bullish you should be looking for and cheering for the U.S. economy to slow. That’s the only way that the Fed goes whole hog dovish and starts cutting interest rates. This may not sound reasonable to you because it’s not reasonable.

To be long stocks in the face of the first part of the GDP slowdown, where people start freaking about a potential recession and the economy goes toward 1%, that’s not the part you want to be long. You want to be long after everybody has completely freaked out and lost a lot more money. Don’t forget that the Russell 2000 is down -22.5%. Yes, 22.5%. It’s crashed. That’s a broad base of stocks and not staring at the Dow Bro.

If you’re looking at the Nasdaq, it’s moving towards crash territory. It’s down -18.2%. Yes, -18.2% since the end of August. In other words, the Nasdaq and Russell are both broad growth exposures that peaked right when the U.S. cycle peaked.

Now you’re starting to understand how all this works, so next time you’re going to know exactly what to do if you didn’t do it. This is the way that we learn.