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How the Markets Are Set Up For the Fourth Quarter

Stay patient while the cycle plays out, argues Real Money's James 'Rev Shark' Deporre.

As the markets finished up the third quarter this week, James “Rev Shark” Deporre offered an assessment of where things stand.

“The market has been undergoing corrective action for nearly a month now, and it’s become sloppier as two bounce attempts have fizzled and worries about the macro picture have developed.” Deporre wrote recently on Real Money.

“The big problem now is that big-cap technology stocks are under pressure, and there are many market players hoping to do some repositioning. Expensive, high-beta, big-cap technology names have been suffering the brunt of the damage the last few days, and it is bad enough that the pressure is leaking over to other areas and keeping money on the sidelines.”

Seasonality is an issue, while big-caps have become extended compared to most other stocks. Additionally, macro worries about inflation, interest rates, and congressional battles are bubbling to the surface, as well. “The market is working on sorting it out, and there should be some interesting technical setups as we head into third-quarter earnings in a couple of weeks,” Rev Shark wrote.

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In such a market environment, skepticism and doubt are on the rise, and predictions of a very difficult market are building just as investors are heading for the seasonally best time of the year.

“This is just a normal market cycle, and we have to stay patient as it plays out,” Deporre noted. “The big gulf of performance between big-cap technology and the rest of the market is starting to dissipate, and that is a positive.”

Rev Shark’s game plan is to maintain a high level of cash, stay patient about adding to favored stocks, and try to knock out some very short-term trades as opportunities arise. “I'm not bullish about the market in the short term, but I am very optimistic that conditions are developing for some great trading in the fourth quarter,” he said.

Get more trading strategies and investing insights from the contributors on Real Money.