Further, a lot of frustration with which stocks are going up. Now if this plays out as a true bear market move, the market will continue higher - drawing in more people from the sidelines who were cautious and not willing to believe in this rebound. As they jump in, they drive up prices, drawing in more buyers. And more. And then once we're all in - we have the next major selloff... just as those doubters had thrown in the towel and joined the bull case.
This is classic behavior. I know I was frustrated last week watching things ramp up "without me". And for those who "believe" in constant bull market they jumped in last week after things had already made a huge dead cat bounce. And now they are very quickly underwater. And so it goes.
This is how it works. And it is very different than the environment since early 2003. It tends to sap your strength and joy if you are a long. Each time you are teased with a move up, you first resist, than the pangs of greed take over, people tell you "this is the bottom", "Fed cuts solve everything" and you buy... right before the market corrects.
Like I said in the past being long right now is like a trout swimming upstream - it can be accomplished but (a) it is a ton of work for very little reward and (b) buy and hold investing is now dead - nothing is working for more than 2-3 weeks at a time - and what works 1 week is totally disavowed the next. Financials that were celebrated the past few weeks are now being dismembered again.
It is certainly not easy, and the movements have been so very violent. We just had the best 1 week period (last week) in 5 years, that followed (2 weeks earlier) the worst 1 week period in 5 years. As I've stated the most logical move, if we broke down again (which appears to be the case) would be to be a retest to our January lows. What we do there (bounce or fall through) will determine a lot of the mood and underlying strength of this market.
S&P500 is currently 1350ish. The retest would be way down at 1275... or 5.5% down from here. I plan to hold the majority of my Ultrashorts to offset the damage on the long positions until we get to that area. I doubt it will be straight down but each rebound will be met with "hey the bottom is in, buy those financials and retailers folks, we are going to boom in 6 months" nonsense. The problem with these vicious falls and just as mad rebounds are no support levels are built... and we have this massive volatility. These continue to be amazing times. For those of you who have the stamina to make it out the "other side" - you will then truly be able to appreciate the type of low volatility environment we enjoyed in 2004-2006. "Buy and hold" era.
Last, if you haven't already go read that ISM blog entry from this morning again. It is key. We are a service based economy. People focus on the employment reports but these are LAGGING indicators. What happens now in ISM shows up in employment reports this summer. Maybe at that point people will recognize this is a recession. Only when the facts are staring them in the face. Just like when we rebound into the next expansion the labor reports will be lagging and still not show the rebound until well after the fact. This ISM report, especially if confirmed in next 2-3 monthly reports with similar sub 46-47 readings, is extremely troubling as that's the whole basis of our economy. Service.
5 comments:
Mark,
I think buy and hold can work in this environment, if you buy fundamentally strong stocks and have enough liquidity to lower your cost average by buying on dips, and selling higher shares into strength. You become a trader of sorts, but in the end you can use this volatility to your advantage.
It's a maddening daytrader's exercise to fully buy in or fully sell out of a position depending on the market's mood on any given day or week.
Way to hold tight to your conviction that it was a simple case of a bear market rally the past couple of weeks. Funny how a lot of pundits (like Cramer) were calling it "the bottom." With your heavy ETF short positions, you're well-positioned to weather this slide.
Blue, where does the new liquidity come from though? This assumes you are constantly flooding your account with new capital. I am speaking strictly from a fixed amount of money account, where you don't add. And I don't mean 100% in and out, I am essentially doing (and have from day 1) what you suggest. I keep my core positions and trade the edges on my main names.
sdk, thanks. It is not offsetting the damage completely but today I am down about 1.3% instead of 2.6% or whatever the indexes are. I am only 20%ish short, and under 10% cash. But its helping to alleviate it. Just making up for lagging last week however.
Until the market calms down the technical/chart method is going to guide me. Until we make a new high, over and above a previous high we are in a bear market. That could be 1 more week, 1 more month, 1 more quarter, or 1 more year. I have no idea. But until then - all rallies are to be sold/shorted against. Exactly the same philosophy of the past 5 years where every dip is bought. Eventually you will be wrong - and at some point shorting against a rally will be incorrect, and we just continue upward, but until that is proven out to be true - this is the pattern to follow. We shall see how long it lasts. Truthfully outside of coal and fertilizer and (gulp) a few homebuilders, I cannot find any nice individual charts. So that tells me all I need to know.
When the real rally happens, I will miss the beginning of it (lag) but then through stock selection I believe can more than make up for it later in the rally. Until then, trying to remain cautious and tune out our friend Cramer :)
Mark,
You're right, it takes capital infusion to make it work. I "recycle" by selling on rallies, maintaining the cash, and buying on dips. And back and forth, and back and forth. I also add as much cash as I can into the account to maintain liquidity.
It's a difficult market, that's for sure! The only safe position is cash.
Thanks for your posts. I enjoy your analysis.
-BD
Cramer is a mess... He gets people too excited just beacuse he gets too excited.. dont know what gets into him when he does the show but his statements hold value only for a day or so... sometimes not even that long.. ;).. He should change the title of his show from "Mad Money" to "Mad Cramer's Quick Trades" or something.. I guess I was too critical.. was I? .. haha..
Cheers..
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