Hopefully no one is shocked that markets made (or are still making) another run down after a pretty big run up. The velocity might be a bit of surprise (10% in two days) but the direction should not be.I (many folks actually) have been saying there will be more ups and downs as the current bear market processes through to the next bull market. A persnickety point; if the 839 SPX low from October 10 ends up holding then we are already in a bull market (of course this is unknowable until after the fact).
Recently I talked about adding the double short back in if SPX went high enough or buying some stock if we go low enough with the range of 900-1000 being a sort of no man's land. So for now, no man's land. Maybe action based on the employment rate or something else.
The MPC cutting rates by 150 basis points should be, in case you needed it, a reminder that we still need a lot of time for things to sort out. I continue to believe that the low is about in (give or take 20-30 SPX points) in terms of price but not time--I think there will be at least a couple of more runs down followed by some big panics up.
I've been writing about feel good rallies leading to more declines for I don't know how long in the hope that readers would not be shocked by this type of action. There is a tendency to forget but ups and downs like this are pretty standard fare in terms of direction even if the magnitude of the moves during the current cycle are not standard.
Much of short term market moves are determined by emotion. I am convinced that keeping your head while those about you lose theirs (or whatever that quote is) is relevant here. A reader asked why after such a big two day drop I had not commented on the volatility, was I used to it he wondered. I don't know if I'm used to it or not. Are you used it? Hopefully you have trained yourself not sweat it.
8 comments:
If you didn't catch it, Charles Kirk posted a very instructional link a couple days ago, "How to tell if this is just another false rally." The author uses the 50 dma and 200 dma to graphically illustrate when it's safe to go back into the water, and how we can bounce along the bottom with days like we've just had until then. Very strong support for your philosophy of when to be more defensive.
Yes I sweat it. I do not let myself act on it, but loosing 100k a day on paper is rather disconcerting.
not acting in a panic is clearly more important. i worded that poorly.
I like to post random questions, and I don't think I've posted this one here.
A couple of spending reductions and a low stock market have got me thinking about saving a lot more money for investments over the next couple of years.
If you've maxed your 401k and Roth IRA, is there a better place to do something like this than a regular taxable account? I'm not really sold on variable annuities, and I'm guessing that variable life insurance plans (don't remember exact name) are as expensive as when I checked them out several years ago (and don't usually allow you to make specific investments).
But I realize that I certainly don't know everything about those products.
SD, this is more of a planning issue so out of me wheel house but I would say an HSA. The limit is something near $5800. the contribution can be deducted. not sure if anyone is restricted from it.
This market is going to require patience that's for sure. Big, fast rallies are more suggestive of traps than bottoms and this can be seen fairly clearly in the profiles of major bear markets (looking in the rear view mirror of course); e.g., a 13% beauty after the 40% haircut in '73 turned out to be one of the more significant sucker rallies since 1930 (market fell another 26% after that).
I don't use dma cross-overs as a buy or sell signal but do tend to become more alert when the trend moves above the 50 and comfort level significantly improves if that continues above 200, assuming it holds of course.
I'm still standing pat for now.
PS: Can't see a reason to avoid a taxable account personally: Gives you options you just don't have in a retirement account or insurance product and provides a wider range of instruments and strategies to deploy as part of an overall investment plan.
Not particularly impressed with insurance products as investments, most are too expensive and under-perform to boot, but did get one from Vanguard as part of an estate plan that was reasonably priced: Had a merely large rather than totally outrageous expense ratio (the insurance wrapper was less than 1%), and several respectable sub-portfolio options; e.g., Wellington Management for the balanced sub-port, PRIMECAP Management for the cap app s-port, etc. FWIW
Roger,
Need to check my math... this really may matter. (I know that you've discussed this in the past, but given the large move in the SDS and in the SPY, it may bear re-emphasizing now, just as folks are considering what and how to protect against a wild move in one direction or another.)
With SPY at 93 right now, the double etf SDS (which I realize has a tracking error due to it being tuned to double the daily inverse percentage move of SPY) could be decimated by a sharp rally.
I want to be sure I'm not "misunderestimating" the potential decimation...
(I've been using SDS to ride out this unpleasantness, but to a much greater degree than you - I probably have 25% of the portfolio in SDS and another 10% in URPIX, with 10% in BEARX. Suffice it to say that daily moves in portfolio value are ... shall we say, exciting?)
Anyhow, I noticed that from 93, a 15% up move in SPY would take it to about 107. And with SDS at 90, its corresponding double down (-30%) move would take it to the vicinity of mid to low 60s.
I mention this because when last we were around 107 on the SPY, SDS was trading for about 83/85.
This "twice the daily" really works to one's disadvantage if you're trying to size the hedge you think you might need. (If you want to protect against a 10% fall in a portfolio with a beta weight equivalent to the SPY, you would normally consider 4-5% SDS.)
Bottom line: don't rely on your intuitive expectation or your memory of where an inverse ETF will end up based on where it was the last time the reference underlying saw your target number. It is very easy to become overhedged; and in a chopping, whipsaw market, being "too light" could quickly leave you chasing offers as you try to add units in a fast deteriorating fade.
R in NY
RinNY
i've tried to make this point before. THe performance in the future depends on the combo of ups and downs that come, nothing else. Where it was before, you are correct means essentially nothing.
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