Back in late December 2008 I said there would be some sort of very big feel good rally which obviously started in March 2009 and on March 11, 2009 I blogged the following;
While I have no idea whether yesterday (March 10, 2009 when the market went up 6%) will be the start of something really big or a one day wonder I do believe we will have a huge rally at some point that makes people start to feel good again followed by another big decline that scares the hell out the same people who felt good on the way up.
The proper context here is not that anything was predicted, clearly the timing was not helpful in the least, but that I simply regurgitated some rather obvious observations gleaned from past market events. I mentioned in that second post yesterday that people seem to forget what declines actually feel like and at some point these same folks, still with no pre-planning in place, simply react to the selling by doing some selling of their own.
The cycle of feel good rally followed by a scare the hell out of them decline, regardless of the time lines in question, is a very bankable market behavior. I do not know if this is the decline that will scare the hell out of anyone or not--it would need to go lower than this I think in order to be cathartic.
The importance of these sorts of very predictable market movements, to the extent our clients read the blog, is that if you've been reading for the last many months that scare the hell out of them declines are normal and bound to happen at some point you are less likely to be one of the ones who gets the hell scared out of you--you knew this would come at some point so what is there to be scared of?
I think it is actually very comforting to know that while the details now seem to be different and scarier (this is always the case in the current event) the market is behaving in a very similar manner to past events; feel good rally followed by a scare the hell out of them decline (now or maybe later).
17 comments:
Richard Russell is scared out of his mind! I don't follow him but apparently he has some credibility and his call to get out of stocks now is getting a lot of play in the media. Obviously, you don't agree, but I wonder if you could share a little commentary on his position.
Thank you very much.
i know he has been very negative on stocks, I do not know if 'scared' is correct or not. all i can say is that a predefined exit strategy (or get defensive strategy in my case) is far better than reacting.
it is likely I will have a trade to talk about over the weekend.
Roger. You say the markets are behaving normally, but are we really in "normal" times or has the world changed fundamentally. In the past, European economies each had their own currency, were basically sustainable, and inflating their way out of debt was an option if things went bad; today, socialism and a common currency are in place. In the US of today, we have a president hell-bent on fundamentally changing our economy to,at least, more socialistic where success is punished and failure rewarded. Has there been a fundamental change in societies and governments such that future growth will be less than historical growth, individual initiative/risk taking still alive and rewarded, and the stock market behaving in a historically consistent manner. Thanks for your thoughts.
I believe I address your question in the post. The details appear to be different but thus far the market reaction is not, at least not yet.
I've said countless times that i expect that once the event is over that US growth will be less than it was in the past necessitating more foreign investing.
ah, Behavioral Finance...the new dismal science. Don't sell yourself short Roger - you made a great observation in very uncertain times. Clearly one of the most dangerous things to believe is that "this time its different" and realizing this is normal behavior is what separates your work from the posers.
sell myself short?
I'm a tremendous slouch.
Nicely played Mr. Webb!
Ever looked at in much detail the "17.6" year cycle? Seems to be playing out...
17.6? I've heard of 18 year but studied it? no.
so did it start in 2000? we have a long-ish way to go then.
Art Cashin will talk about it on occasion. I had a client once show me a old, yellowed newspaper article from the 70's discussing. Seems to have some validity...and yes, March 2000 was the beginning of this cycle. But then again, the Mayans dated the end of time 12/21/12, so perhaps we'll never know.
SO what happens if the S&P closes right at the 200 day, or if it closes above the 200 day EMA but below the 200 day SMA? Inquiring minds are wondering if anyone cares to comment.....
Anon 8:46. Whenever I have a triggering event to take action I have it to support of an existing theory rather then as a stand alone.
My concern is that I want to have context of why its dropping before it happens (when possible of course). I don't want to have an automated trading system telling me when to buy and sell.
Personally what I did was go 3% of my portfolio into SDS yesterday. I wont wait for confirmation of a second day below the 200 DMA or something like that because this event already is confirmation for me. That should be a little bit of aspirin for my portfolios headache if this is "the big one".
To answer your question of what happens next? Just because we end up 1 day above the 200 DMA or some other technical reason I wont sell SDS. I prefer technical + fundamental together.
I doubt I will sell it unless we go to maybe around 1175 however that's highly dependent upon what happens between now and then.
I personally enter and exit the market mechanically based on a system involving a few more factors than the venerable 200 SMA rule. So for my own account it makes no difference what happens with the 200 SMA in the next few days.
Glancing at past crashes though it looks like the "first time" the price crosses the 200 SMA nothing interesting seems to happen. Additionally a cursory look leads me to believe that if the 200 SMA slope isn't flat or negative when the price crosses, then no crash takes place at that crossing.
For fun (not investment purposes) I have been looking at charts to try to guess what will happen. If you look at the deflated Dow in particular (http://www.dogsofthedow.com/dow1925cpilog.htm)
The 2000 peak and denouement looks very striking like the 1966 peak and following. If that analogy holds then we should have a year or more of rally left before a good size down leg, at least in real prices. SEG has also been saying this still feels like a bull run...
Again if the analogy holds; after bouncing down for 17.6 years ;) to 2018 or so we might wind up this commodity bull and be priced to start an equity bull again.
"....In the US of today, we have a president hell-bent on fundamentally changing our economy to,at least, more socialistic where success is punished and failure rewarded."
From my point of view, there has been much lying,unethical practices,chicanery,crookedness, thievery, etc, ad naseum in the past by many....who became successful $$$.
Perhaps Obama is attempting to restrain this
Does anyone here REALLY believe in pre-ordained market cycles, aka 17.6 years? I mean really?
I'm absolutely amazed in the 21st century we still have people using the equivalent of astrology and numerology to come up with reasons for everything.
Is it really that hard to just admit the future is unknown? The market has risk, that's the way it is. You invest if risk is acceptable. We can't reduce risk by imposing all sorts of imaginary patterns on it. The risk is still there.
DOes anyone really believe the market is not being manipulated on a massive scale? How does it drop 1000 points in 15 minutes like it did a few weeks ago? How did it rise 125 points in the last 10 minutes today? No one wants to admit it, but what could possibly be a rational explanation other than manipulation for these kinds of moves? Anyone care to weigh in?
So is it the illuminati, catholic church, or the skull and crossbones?
If you're gonna cry conspiracy then do it right.
I like dontworrybehappy's comment. Like Roger is always saying: the market will go up and the market will go down. We just don't know exactly when which is why people keep looking for a shortcut answer. It's too simple for people to grasp.
Post a Comment