Big Investors Could Hit the 'Eject Button' After Supply Shortage Issue Gains Steam
Any spark of news about supply issues could quickly turn this pullback into something much deeper and quickly destroy positive technical action.
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It isn’t too surprising that the market is seeing pullbacks on Monday after the terrific technical action last week. There was extremely strong momentum and breadth, and some key overhead resistance levels were breached. However, moves this big are an invitation for some repositioning and profit-taking.
In the current environment, there is the additional problem of major concerns about the impact of tariffs. There is a very loud narrative about how shipping levels for many things from China have dropped to almost nothing, which suggests that there will be supply shortages very soon.
It is difficult to see how there won’t be an impact from this shift in the supply chain. However, the market has been focusing more on progress for longer-term deals than it has been worried about the actual effect that will likely occur soon. There have been comparisons made to the supply problems during Covid, which sounds very dramatic, but once there are stories about shortages, it could trigger some real problems.
If supply issues do start to bite, then this pullback could quickly turn into something much deeper. What is helping to put a bid under the action now is hope that there will be positive news on trade negotiations, although there doesn’t appear to be anything happening immediately.
My game plan is to make some reductions, particularly in stocks that have moved and are exposed to trade pressure. Other sectors, such as biotechnology, are relatively sheltered, but nothing will be very safe if there is a more severe pullback.
This is an extremely unusual market environment with very strong technical action but major fundamental worries that could hit hard at any time. I suspect that the big investors that have recently been "strategically bullish" are ready to hit the eject button at any time. Any spark of news about supply issues is going to lead to a swift reaction.
Stay extra vigilant and be ready to move quickly.
At the time of publication, Rev Shark had no positions in any securities mentioned.
