(Next update Wednesday, March 11th, 2015)
Predict early and often. That’s what the top pickers do. True, sooner or later they will be right but sometimes the market just has a bad day.
The Chicken Littles have been calling a top for quite some time but the market has continued to plow ahead. Make no bones about it, Friday was pretty ugly—an oxymoron from a Trend Following Moron. So far though, it’s just one bad day.
Let’s look at the carnage. Lately, I’ve been concerned about Bonds. On a relative basis, rates are about where they were around 4 years ago. That’s no big deal. It’s the change in rates, the so called “delta” that’s concerning. The market seemed to shrug this off until Friday. Bonds accelerated lower and stocks followed suit.
The Ps (S&P 500) dropped nearly 1 ½%. The problem now is that this puts them back into their prior trading range—which sucks. On a net net basis, they are now where they were last November. Sometimes with bases you have a false move out of the range and then the market does the opposite—sucking in the breakout players and then spitting them out. This is one of my concerns but I’m not going to worry about too much unless it happens.
Longer-term the Quack (Nasdaq) looks much better. It lost a percent and change on Friday but it was due for a pullback. Futures are soft pre-market so we could see some additional weakness around the open. This action here, provided it stops soon of course, could actually be healthy—in the spirit of a Trend Knockout. This type of action shakes out the weak hands and attracts the eager shorts. This could clear the way for the market to trade higher. We won’t know until we know though. In the meantime, you have to honor your stops just in case. He who fights and runs away, lives to fight another day—have I mentioned that before?
Again, we’ll know when we know. In the meantime, we just follow.
In the sectors, as you would expect the damage was worse in interest rate sensitive areas such as Real Estate and Utilities—both lost nearly 3%. And, 3% is a big deal for these lower beta (volatility) areas.
Gold melted down. It’s now approaching 5-year lows. Unfortunately, it faked us out recently. That’s okay. We’ll get it next time. See the aforementioned run away thing.
The good news is, most tech still such as Drugs, Biotech, and the Semis still remain in solid uptrends and have only pulled back a bit—like the Nasdaq itself.
Ditto for some areas outside of tech such as Retail.
It’s not the end of the word, nor can you see it from here. It is a test. And, if the market fails, we’ll have to deal with it.
Back before Al Gore invented the Internet there was a service called Prodigy. In the stock forums I met an older gentleman who was pumping his favorite stock. Stupidly, I bought all I could afford and then some. The stock then got creamed. I called the guy to ask WTF and he said in a slow and calm voice with a slightly clinched jaw: “DaaVid, no one rings a bell when a market has topped.” Hmm, I’m not sure why he didn’t bother telling me that the day before. I guess experience is what you get right after you need it the most.
So what do we do? Again, no one’s going to ring a bell for us. Like Justice Potter Stewart, we’ll know it when we see it. In the meantime, at the risk of preaching, honor your stops just in case. Wait for entries on new positions. If the market continues to slide, that in and of itself will often keep you out of new soon-to-be losing positions. And, as usual, make sure you are picking the best of the best stocks to begin with. Money management is crucial but never forget that a good offense is often your best defense.
Best of luck with your trading today!